Interesting Facts about India
India never invaded any country in her last 1000 years of history.
When many cultures were only nomadic forest dwellers over 5000 years ago, Indians established Harappan culture in Sindhu Valley (Indus Valley Civilization)
The name 'India' is derived from the River Indus, the valleys around which were the home of the early settlers. The Aryan worshippers referred to the river Indus as the Sindhu.
The Persian invaders converted it into Hindu. The name 'Hindustan' combines Sindhu and Hindu and thus refers to the land of the Hindus.
Chess was invented in India.
Algebra, Trigonometry and Calculus are studies, which originated in India.
The 'Place Value System' and the 'Decimal System' were developed in India in 100 B.C.
The World's First Granite Temple is the Brihadeswara Temple at Tanjavur, Tamil Nadu. The shikhara of the temple is made from a single 80-tonne piece of granite. This magnificent temple was built in just five years, (between 1004 AD and 1009 AD) during the reign of Rajaraja Chola.
India is the largest democracy in the world, the 6th largest Country in the world, and one of the most ancient civilizations.
The game of Snakes & Ladders was created by the 13th century poet saint Gyandev. It was originally called 'Mokshapat'. The ladders in the game represented virtues and the snakes indicated vices. The game was played with cowrie shells and dices. In time, the game underwent several modifications, but its meaning remained the same, i.e. good deeds take people to heaven and evil to a cycle of re-births.
The world's highest cricket ground is in Chail, Himachal Pradesh. Built in 1893 after leveling a hilltop, this cricket pitch is 2444 meters above sea level.
India has the largest number of Post Offices in the world.
The largest employer in the world is the Indian Railways, employing over a million people.
The world's first university was established in Takshila in 700 BC. More than 10,500 students from all over the world studied more than 60 subjects. The University of Nalanda built in the 4th century was one of the greatest achievements of ancient India in the field of education.
Ayurveda is the earliest school of medicine known to mankind. The Father of Medicine, Charaka, consolidated Ayurveda 2500 years ago.
India was one of the richest countries till the time of British rule in the early 17th Century. Christopher Columbus, attracted by India's wealth, had come looking for a sea route to India when he discovered America by mistake.
The Art of Navigation & Navigating was born in the river Sindh over 6000 years ago. The very word Navigation is derived from the Sanskrit word 'NAVGATIH'. The word navy is also derived from the Sanskrit word 'Nou'.
Bhaskaracharya rightly calculated the time taken by the earth to orbit the Sun hundreds of years before the astronomer Smart. According to his calculation, the time taken by the Earth to orbit the Sun was 365.258756484 days.
The value of "pi" was first calculated by the Indian Mathematician Budhayana, and he explained the concept of what is known as the Pythagorean Theorem. He discovered this in the 6th century, long before the European mathematicians.
Algebra, Trigonometry and Calculus also originated in India.Quadratic Equations were used by Sridharacharya in the 11th century. The largest numbers the Greeks and the Romans used were 106 whereas Hindus used numbers as big as 10*53 (i.e. 10 to the power of 53) with specific names as early as 5000 B.C.during the Vedic period.Even today, the largest used number is Terra: 10*12(10 to the power of 12).
Until 1896, India was the only source of diamonds in the world (Source: Gemological Institute of America).
The Baily Bridge is the highest bridge in the world. It is located in the Ladakh valley between the Dras and Suru rivers in the Himalayan mountains. It was built by the Indian Army in August 1982.
Sushruta is regarded as the Father of Surgery. Over2600 years ago Sushrata & his team conducted complicated surgeries like cataract, artificial limbs, cesareans, fractures, urinary stones, plastic surgery and brain surgeries.
Usage of anaesthesia was well known in ancient Indian medicine. Detailed knowledge of anatomy, embryology, digestion, metabolism,physiology, etiology, genetics and immunity is also found in many ancient Indian texts.
India exports software to 90 countries.
The four religions born in India - Hinduism, Buddhism, Jainism, and Sikhism, are followed by 25% of the world's population.
Jainism and Buddhism were founded in India in 600 B.C. and 500 B.C. respectively.
Islam is India's and the world's second largest religion.
There are 300,000 active mosques in India, more than in any other country, including the Muslim world.
The oldest European church and synagogue in India are in the city of Cochin. They were built in 1503 and 1568 respectively.
Jews and Christians have lived continuously in India since 200 B.C. and 52 A.D. respectively
The largest religious building in the world is Angkor Wat, a Hindu Temple in Cambodia built at the end of the 11th century.
The Vishnu Temple in the city of Tirupathi built in the 10th century, is the world's largest religious pilgrimage destination. Larger than either Rome or Mecca, an average of 30,000 visitors donate $6 million (US) to the temple everyday.
Sikhism originated in the Holy city of Amritsar in Punjab. Famous for housing the Golden Temple, the city was founded in 1577.
Varanasi, also known as Benaras, was called "the Ancient City" when Lord Buddha visited it in 500 B.C., and is the oldest, continuously inhabited city in the world today.
India provides safety for more than 300,000 refugees originally from Sri Lanka, Tibet, Bhutan, Afghanistan and Bangladesh, who escaped to flee religious and political persecution.
His Holiness, the Dalai Lama, the exiled spiritual leader of Tibetan Buddhists, runs his government in exile from Dharmashala in northern India.
Martial Arts were first created in India, and later spread to Asia by Buddhist missionaries.
Yoga has its origins in India and has existed for over 5,000 years.
IEEE has proved what has been a century old suspicion in the world scientific community that the pioneer of wireless communication was Prof. Jagdish Bose and not Marconi.
The earliest reservoir and dam for irrigation was built in Saurashtra.
According to Saka King Rudradaman I of 150 CE a beautiful lake called Sudarshana was constructed on the hills of Raivataka during Chandragupta Maurya's time.
India is one of the few countries in the World, which gained independence without violence.
India has the second largest pool of Scientists and Engineers in the World.
India is the largest English speaking nation in the world.
India is the only country other than US and Japan, to have built a super computer indigenously.
Famous Quotes on India (by non-Indians)
Albert Einstein said: We owe a lot to the Indians, who taught us how to count, without which no worthwhile scientific discovery could have been made.
Mark Twain said: India is, the cradle of the human race, the birthplace of human speech, the mother of history, the grandmother of legend, and the great grand mother of tradition. Our most valuable and most instructive materials in the history of man are treasured up in India only.
French scholar Romain Rolland said: If there is one place on the face of earth where all the dreams of living men have found a home from the very earliest days when man began the dream of existence, it is India.
Hu Shih, former Ambassador of China to USA said: India conquered and dominated China culturally for 20 centuries without ever having to send a single soldier across her border
Q. Who is the co-founder of Sun Microsystems?A. Vinod Khosla
Q. Who is the creator of Pentium chip (needs no introduction as 90% of thetoday's computers run on it)?A. Vinod Dahm
Q. Who is the third richest man on the world?A. According to the latest report on Fortune Magazine, it is Aziz Premji,who is the CEO of Wipro Industries. The Sultan of Brunei is at 6thposition now.
Q. Who is the founder and creator of Hotmail (Hotmail is world's No.1 webbased email program)?A. Sabeer Bhatia
Q. Who is the president of AT & T-Bell Labs (AT & T-Bell Labs is the creatorof program languages such as C, C++, Unix to name a few)?A. Arun Netravalli
Q. Who is the GM of Hewlett Packard?A. Rajiv Gupta
Q. Who is the new MTD (Microsoft Testing Director) of Windows 2000,responsible to iron out all initial problems?A. Sanjay Tejwrika
Q. Who are the Chief Executives of CitiBank, Mckensey & Stanchart?A. Victor Menezes, Rajat Gupta, and Rana Talwar. We Indians are the wealthiest among all ethnic groups in America, evenfaring better than the whites and the natives.
There are 3.22 millions of Indians in USA (1.5% of population). ,
Source;-http://blog.bitcomet.com/post/146846/
Monday, March 1, 2010
Friday, November 13, 2009
YOUR MONEY-YOUR LIFE
Your money, your life!
by Rajen Devadason
Taking care of the money you earn should be one of your most important activities says financial planning author and expert Rajen Devadason who shows you some simple steps to get started on the road to financial freedom.
Congratulations! After years of sacrifice and striving, you've graduated.
What you accomplish in the decades ahead is largely dependent upon how hard and how smart you work. Since I graduated more than 15 years ago, I've made every conceivable mistake under the sun. So, perhaps I can save you some grief – if you let me!
What I hope to leave with you is a simple road map that reveals the hidden dangers and awesome possibilities that lie ahead. Regardless of what career path you choose, the one common denominator of modern living is our need for money.
How well you manage the trickle, stream or flood of money that flows into your pockets will determine whether you keep slaving away throughout the next three or four decades! If you manage your money well, you will be able to stop working for it relatively early in life because your money will work hard for you.
Please consider the story below as a true account of negative beliefs can blind you to life's possibilities: Back in 1870, there was a bishop who told the president of an American college that he believed nothing was left for Man to invent! The college president disagreed: “Why, I believe it may even be possible for men in the future to fly through the air like birds.”
The bishop was shocked. He warned the far-sighted educator, “Flying is reserved for the angels. I beg you not to mention that again lest you be guilty of blasphemy!” The bishop's name was Milton Wright. He couldn't have been more wrong.
You see, he was the father of Wilbur and Orville, who 33 years after that conversation became the first humans to fly!
GIVE ME LIBERTY!
I don't know your background. But there have probably been people in your life who've made negative comments about your big dreams. Well, if those dreams include significant financial success, I have good news for you.
There is a powerful seven-step process I have developed called the L-I-B-E-R-T-Y Plan, which can save you a lot of grief and maybe allow you one day to soar further than anyone else in your family ever has.
Step 1: Liability Eradication
Step 2: Investing Inclination
Step 3: Buy Low, Sell High
Step 4: Emergency Buffer Establishment
Step 5: Rajen's Reading List
Step 6: Teach Others
Step 7: Yearn, learn and earn your way to financial freedom!
Step 1: Liability Eradication
Your past, present and future wealth is measured by one financial document, your net worth statement. Here is a simple example:
NET WORTH STATEMENT
Assets minus liabilities equal net worth. Assets fall into two categories, consumption assets like a car to drive or a house to live in, and productive assets like savings, investments and businesses. Sadly, liabilities normally carry with them higher interest charges than most assets yield!
In simple terms, this means it is pointless having RM10, 000 in a fixed deposit account earning 3.2% interest, while carrying RM10, 000 of credit card debt costing you a nominal interest rate of 18% a year, which actually works out to an annualised percentage rate of 19.7%!
So, get rid of your consumer liabilities. (Specific strategies are covered in my book Liberty! From Debt Slave to Money Master; 2002).
Step 2: Investing Inclination
Develop your understanding of the investment market by reading diligently (see Step 5) and by talking to those who save and invest intelligently.
Step 3: Buy Low, Sell High
Whether it's chicken rice, pharmaceuticals or paper assets like stocks and bonds, the only way to grow rich is to buy low and sell high. In the investment world, you can employ excellent strategies like dollar-cost averaging and value-cost averaging to effectively buy low and sell high. In the case of dollar-cost averaging, you invest equal amounts of money, at equal intervals, regardless of market conditions.
The net result over many years is that you end up doing most of your buying at the lower end of the price fluctuation band. You end up buying low. You then can wait for a time of market strength to sell high! Value-cost averaging is similar in concept to dollar-cost averaging, but instead of investing equal amounts, you invest variable amounts that are essentially inversely proportional to the market level.
So the higher the market is, the less you invest, and the lower it is, the more you invest. (A free article explaining this in greater detail will be available at www.rajendevadason.com) So, if you have a small amount of money to start with, then
I would urge you each month to save a bit in the bank and invest the rest in a proven unit trust fund. (In case you didn't know, a unit trust fund is an investment vehicle that pools or collects together relatively small contributions from many investors with similar financial aims.)
Step 4: Emergency Buffer Establishment
Open a savings account where you build up to and keep between 3 and 12 months' expenses. Keep this money safe in the bank for emergencies.
Warning: It may take as long as three years to build this buffer. So, keep at it and save diligently.
Your emergency buffer is for emergencies, not for exciting ‘opportunities' like Parkson sale! And having your buffer will give you financial stability.
This stability will help you weather the ups and downs of the investment markets.
Step 5: Rajen's Reading List
For those who are serious about learning, I've put together a list of 26 titles – ranked not alphabetically, but by complexity and depth.
The simpler titles are at the top and the more challenging ones at the bottom.
If you consider yourself a novice, begin with some of the first titles suggested and work your way down the list. If, on the other hand, you have a solid foundation in finance, you might want to begin in the middle or near the end of the list.
RAJEN DEVADASON'S GRADED READING LIST FOR D-I-Y LEARNERS OF FINANCIAL PLANNING
1. The Magic Safe, Ellen Tan
2. Richest Man in Babylon, George S. Clason
3. Liberty! From Debt-Slave to Money Master, Rajen Devadason
4. Learn to Earn, Peter Lynch and John Rothchild
5. The Wealthy Barber, David Chilton
6. Millionaires Are From a Different Planet! Azizi Ali with KP Bose Dasan
7. Financial Freedom – Your Guide to Lifetime Financial Planning, Edmond Cheah, Wong Boon Choy, Alex Sito and Rajen Devadason
8. Rich Dad, Poor Dad – What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! Robert T. Kiyosaki with Sharon L. Lechter
9. Wise Moves to Retirement, Nathan Balakrishnan and Geoff Stecyk
10. The Millionaire in Me, Azizi Ali
11. One Up On Wall Street, Peter Lynch and John Rothchild
12. Buffett – The Making of an American Capitalist, Roger Lowenstein
13. The Millionaire Next Door, Thomas J. Stanley and William D. Danko
14. Your A-Z Guide to the Stock Market, Rajen Devadason
15. Economics Explained, Robert Heilbroner and Lester Thurow
16. The Cashflow Quadrant – Rich Dad's Guide to Financial Freedom, Robert T. Kiyosaki with Sharon L. Lechter
17. The Millionaire Mind, Thomas J. Stanley
18. Financial Freedom 2 – Through Malaysian Equities and Unit Trusts, Edmond Cheah, Wong Boon Choy and Rajen Devadason
19. The Return of Depression Economics, Paul Krugman
20. Beating the Street, Peter Lynch and John Rothchild
21. Manias, Panics, and Crashes – A History of Financial Crises, Charles P. Kindleberger 22. Common Sense on Mutual Funds, John C. Bogle
23. Common Stocks and Uncommon Profits – and Other Writings by Philip A. Fisher, Philip A. Fisher
24. The Intelligent Investor, Benjamin Graham
25. Soros on Soros – Staying Ahead of the Curve, George Soros, Byron Wien and Krisztina Koenen
26. Security Analysis, Benjamin Graham and David Dodd
If you want to begin the process of developing a brain that churns out ideas and plans that put money in your pocket, food on the table and significance in your life, then reading regularly on subjects such as those on my list, is very important.
Remember the excellent habits you developed in school and exercised at university – read with pen, marker and notebook by your side!
Step 6: Teach Others
The only way to truly know something is to learn it and apply it well enough to be able to teach others.
So, go through each of the five earlier steps. Think about each, and then identify one friend to teach the material to. (If, for instance, you want to share the reading list above with that friend, you may download my free e-book 26 Books to Take YOU all the Way to the TOP! at www.rajendevadason.com, or have him download it directly.)
As you share with others, you will be enriched – in your heart, head and eventually bank account.
Step 7: Yearn, learn and earn your way to financial freedom!
Never use a low starting salary of perhaps just RM1, 500 or RM2, 000 as an excuse for not beginning. Aim to save and invest up to 40% or 50% of your gross pay!
You probably can't do it straight away, but even if you can only begin with 10% – or if you're truly hard up, 1% – the key is to start low and slow, but to steadily pick up the pace.
CONCLUSION
Never give up on your dreams – keep your yearning alive.
Never stop using your brain – keep learning.
Never remain satisfied with your present income level – keep saving and investing to gradually transform your active income stream (money you work for) into a passive income flood (money working for you, through savings and investments).
Your goal: FINANCIAL FREEDOM – having a passive income flood large enough to take care of all normal expenses.
The day you reach financial freedom is the day you liberate yourself from the tyranny of the rat race. That is a worthy goal.
I believe you can succeed.
© 2003 Rajen Devadason (Rajen Devadason is a Certified Financial Planner and CEO of RD WealthCreation Sdn Bhd and RD Book Projects. He has, at the time of this writing, authored or co-authored seven books (two of which are e-books), and publishes the FREE e-zine GET BETTER! Those wanting to receive this weekly electronic dose of ideas and articles on how to live better lives by optimally managing time, talent and money are invited to sign-up at www.rajendevadason.com.)
WHAT THOSE FINANCIAL TERMS MEAN:
Annualised percentage rate (APR) – the effective interest rate. Because interest rates can be quoted in many different ways, such as daily rest/monthly rest/or yearly rest, or as in the case of the usual hire purchase loans in Malaysia, no rest at all, the APR converts all these different ‘interest rate formats' to one understandable number. This makes for easy comparison between different types of loans.
For instance, if you have two loans, both stated as 18% a year, you might think they are exactly the same. But what if one was a nominal 18% a year with daily compounding and the other was a nominal 18% with monthly compounding? To be able to compare ‘apples with apples', you should convert both to their equivalent APRs and then decide on which one is more expensive. In this simple example, the daily compounding loan has an APR of 19.72% and the monthly one has an APR of 19.56%.
Assets – anything you own or anything someone owes you that either has monetary value today or that will produce money for you tomorrow, for example a house you can let out and collect rent on each month.
Financial freedom – having sufficient passive income gushing out of your portfolio of savings, investments and businesses to cover all expenses.
Financial stability – being financially sound, strong or robust.
Gross salary – your salary before any deductions such as SOCSO, EPF and taxes.
Liability – a debt, something you owe and have to pay for, usually every month, like a house or a car. The asset doesn't totally belong to you until you have paid it off.
Net worth – a measure of your financial strength. It equals the value of your assets on a particular day minus the value of all your liabilities on that same day.
Passive income – money you earn every month without having to work. An example of passive income would be future royalties you earn from writing a book, or rent collected from a tenants. (from Graduan 2004)
Source ;http://www.graduan.com.my/Page/LearningCenter/LearningCenter/Your-money-your-life
by Rajen Devadason
Taking care of the money you earn should be one of your most important activities says financial planning author and expert Rajen Devadason who shows you some simple steps to get started on the road to financial freedom.
Congratulations! After years of sacrifice and striving, you've graduated.
What you accomplish in the decades ahead is largely dependent upon how hard and how smart you work. Since I graduated more than 15 years ago, I've made every conceivable mistake under the sun. So, perhaps I can save you some grief – if you let me!
What I hope to leave with you is a simple road map that reveals the hidden dangers and awesome possibilities that lie ahead. Regardless of what career path you choose, the one common denominator of modern living is our need for money.
How well you manage the trickle, stream or flood of money that flows into your pockets will determine whether you keep slaving away throughout the next three or four decades! If you manage your money well, you will be able to stop working for it relatively early in life because your money will work hard for you.
Please consider the story below as a true account of negative beliefs can blind you to life's possibilities: Back in 1870, there was a bishop who told the president of an American college that he believed nothing was left for Man to invent! The college president disagreed: “Why, I believe it may even be possible for men in the future to fly through the air like birds.”
The bishop was shocked. He warned the far-sighted educator, “Flying is reserved for the angels. I beg you not to mention that again lest you be guilty of blasphemy!” The bishop's name was Milton Wright. He couldn't have been more wrong.
You see, he was the father of Wilbur and Orville, who 33 years after that conversation became the first humans to fly!
GIVE ME LIBERTY!
I don't know your background. But there have probably been people in your life who've made negative comments about your big dreams. Well, if those dreams include significant financial success, I have good news for you.
There is a powerful seven-step process I have developed called the L-I-B-E-R-T-Y Plan, which can save you a lot of grief and maybe allow you one day to soar further than anyone else in your family ever has.
Step 1: Liability Eradication
Step 2: Investing Inclination
Step 3: Buy Low, Sell High
Step 4: Emergency Buffer Establishment
Step 5: Rajen's Reading List
Step 6: Teach Others
Step 7: Yearn, learn and earn your way to financial freedom!
Step 1: Liability Eradication
Your past, present and future wealth is measured by one financial document, your net worth statement. Here is a simple example:
NET WORTH STATEMENT
Assets minus liabilities equal net worth. Assets fall into two categories, consumption assets like a car to drive or a house to live in, and productive assets like savings, investments and businesses. Sadly, liabilities normally carry with them higher interest charges than most assets yield!
In simple terms, this means it is pointless having RM10, 000 in a fixed deposit account earning 3.2% interest, while carrying RM10, 000 of credit card debt costing you a nominal interest rate of 18% a year, which actually works out to an annualised percentage rate of 19.7%!
So, get rid of your consumer liabilities. (Specific strategies are covered in my book Liberty! From Debt Slave to Money Master; 2002).
Step 2: Investing Inclination
Develop your understanding of the investment market by reading diligently (see Step 5) and by talking to those who save and invest intelligently.
Step 3: Buy Low, Sell High
Whether it's chicken rice, pharmaceuticals or paper assets like stocks and bonds, the only way to grow rich is to buy low and sell high. In the investment world, you can employ excellent strategies like dollar-cost averaging and value-cost averaging to effectively buy low and sell high. In the case of dollar-cost averaging, you invest equal amounts of money, at equal intervals, regardless of market conditions.
The net result over many years is that you end up doing most of your buying at the lower end of the price fluctuation band. You end up buying low. You then can wait for a time of market strength to sell high! Value-cost averaging is similar in concept to dollar-cost averaging, but instead of investing equal amounts, you invest variable amounts that are essentially inversely proportional to the market level.
So the higher the market is, the less you invest, and the lower it is, the more you invest. (A free article explaining this in greater detail will be available at www.rajendevadason.com) So, if you have a small amount of money to start with, then
I would urge you each month to save a bit in the bank and invest the rest in a proven unit trust fund. (In case you didn't know, a unit trust fund is an investment vehicle that pools or collects together relatively small contributions from many investors with similar financial aims.)
Step 4: Emergency Buffer Establishment
Open a savings account where you build up to and keep between 3 and 12 months' expenses. Keep this money safe in the bank for emergencies.
Warning: It may take as long as three years to build this buffer. So, keep at it and save diligently.
Your emergency buffer is for emergencies, not for exciting ‘opportunities' like Parkson sale! And having your buffer will give you financial stability.
This stability will help you weather the ups and downs of the investment markets.
Step 5: Rajen's Reading List
For those who are serious about learning, I've put together a list of 26 titles – ranked not alphabetically, but by complexity and depth.
The simpler titles are at the top and the more challenging ones at the bottom.
If you consider yourself a novice, begin with some of the first titles suggested and work your way down the list. If, on the other hand, you have a solid foundation in finance, you might want to begin in the middle or near the end of the list.
RAJEN DEVADASON'S GRADED READING LIST FOR D-I-Y LEARNERS OF FINANCIAL PLANNING
1. The Magic Safe, Ellen Tan
2. Richest Man in Babylon, George S. Clason
3. Liberty! From Debt-Slave to Money Master, Rajen Devadason
4. Learn to Earn, Peter Lynch and John Rothchild
5. The Wealthy Barber, David Chilton
6. Millionaires Are From a Different Planet! Azizi Ali with KP Bose Dasan
7. Financial Freedom – Your Guide to Lifetime Financial Planning, Edmond Cheah, Wong Boon Choy, Alex Sito and Rajen Devadason
8. Rich Dad, Poor Dad – What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! Robert T. Kiyosaki with Sharon L. Lechter
9. Wise Moves to Retirement, Nathan Balakrishnan and Geoff Stecyk
10. The Millionaire in Me, Azizi Ali
11. One Up On Wall Street, Peter Lynch and John Rothchild
12. Buffett – The Making of an American Capitalist, Roger Lowenstein
13. The Millionaire Next Door, Thomas J. Stanley and William D. Danko
14. Your A-Z Guide to the Stock Market, Rajen Devadason
15. Economics Explained, Robert Heilbroner and Lester Thurow
16. The Cashflow Quadrant – Rich Dad's Guide to Financial Freedom, Robert T. Kiyosaki with Sharon L. Lechter
17. The Millionaire Mind, Thomas J. Stanley
18. Financial Freedom 2 – Through Malaysian Equities and Unit Trusts, Edmond Cheah, Wong Boon Choy and Rajen Devadason
19. The Return of Depression Economics, Paul Krugman
20. Beating the Street, Peter Lynch and John Rothchild
21. Manias, Panics, and Crashes – A History of Financial Crises, Charles P. Kindleberger 22. Common Sense on Mutual Funds, John C. Bogle
23. Common Stocks and Uncommon Profits – and Other Writings by Philip A. Fisher, Philip A. Fisher
24. The Intelligent Investor, Benjamin Graham
25. Soros on Soros – Staying Ahead of the Curve, George Soros, Byron Wien and Krisztina Koenen
26. Security Analysis, Benjamin Graham and David Dodd
If you want to begin the process of developing a brain that churns out ideas and plans that put money in your pocket, food on the table and significance in your life, then reading regularly on subjects such as those on my list, is very important.
Remember the excellent habits you developed in school and exercised at university – read with pen, marker and notebook by your side!
Step 6: Teach Others
The only way to truly know something is to learn it and apply it well enough to be able to teach others.
So, go through each of the five earlier steps. Think about each, and then identify one friend to teach the material to. (If, for instance, you want to share the reading list above with that friend, you may download my free e-book 26 Books to Take YOU all the Way to the TOP! at www.rajendevadason.com, or have him download it directly.)
As you share with others, you will be enriched – in your heart, head and eventually bank account.
Step 7: Yearn, learn and earn your way to financial freedom!
Never use a low starting salary of perhaps just RM1, 500 or RM2, 000 as an excuse for not beginning. Aim to save and invest up to 40% or 50% of your gross pay!
You probably can't do it straight away, but even if you can only begin with 10% – or if you're truly hard up, 1% – the key is to start low and slow, but to steadily pick up the pace.
CONCLUSION
Never give up on your dreams – keep your yearning alive.
Never stop using your brain – keep learning.
Never remain satisfied with your present income level – keep saving and investing to gradually transform your active income stream (money you work for) into a passive income flood (money working for you, through savings and investments).
Your goal: FINANCIAL FREEDOM – having a passive income flood large enough to take care of all normal expenses.
The day you reach financial freedom is the day you liberate yourself from the tyranny of the rat race. That is a worthy goal.
I believe you can succeed.
© 2003 Rajen Devadason (Rajen Devadason is a Certified Financial Planner and CEO of RD WealthCreation Sdn Bhd and RD Book Projects. He has, at the time of this writing, authored or co-authored seven books (two of which are e-books), and publishes the FREE e-zine GET BETTER! Those wanting to receive this weekly electronic dose of ideas and articles on how to live better lives by optimally managing time, talent and money are invited to sign-up at www.rajendevadason.com.)
WHAT THOSE FINANCIAL TERMS MEAN:
Annualised percentage rate (APR) – the effective interest rate. Because interest rates can be quoted in many different ways, such as daily rest/monthly rest/or yearly rest, or as in the case of the usual hire purchase loans in Malaysia, no rest at all, the APR converts all these different ‘interest rate formats' to one understandable number. This makes for easy comparison between different types of loans.
For instance, if you have two loans, both stated as 18% a year, you might think they are exactly the same. But what if one was a nominal 18% a year with daily compounding and the other was a nominal 18% with monthly compounding? To be able to compare ‘apples with apples', you should convert both to their equivalent APRs and then decide on which one is more expensive. In this simple example, the daily compounding loan has an APR of 19.72% and the monthly one has an APR of 19.56%.
Assets – anything you own or anything someone owes you that either has monetary value today or that will produce money for you tomorrow, for example a house you can let out and collect rent on each month.
Financial freedom – having sufficient passive income gushing out of your portfolio of savings, investments and businesses to cover all expenses.
Financial stability – being financially sound, strong or robust.
Gross salary – your salary before any deductions such as SOCSO, EPF and taxes.
Liability – a debt, something you owe and have to pay for, usually every month, like a house or a car. The asset doesn't totally belong to you until you have paid it off.
Net worth – a measure of your financial strength. It equals the value of your assets on a particular day minus the value of all your liabilities on that same day.
Passive income – money you earn every month without having to work. An example of passive income would be future royalties you earn from writing a book, or rent collected from a tenants. (from Graduan 2004)
Source ;http://www.graduan.com.my/Page/LearningCenter/LearningCenter/Your-money-your-life
Saturday, October 24, 2009
THE WORLD TOP TEN GREAT INVESTORS
1. Warren Buffett
Job description
Chief executive officer, Berkshire Hathaway Holdings, an investment firm headquartered in Omaha, Nebraska, USA.
Investment style
Originally a value investor interested chiefly in assets, Buffett has since become a long-term growth investor.
Profile
Buffett is a phenomenon. In 1986, he was briefly the richest man in the world, with a net worth of $16bn, thanks entirely to his stockpicking skills and fee income from investment management. He is now worth over $20bn. Yet he started out in 1954 with just $100 to invest. After training as a broker with Benjamin Graham, he founded an investment partnership, with himself as manager. This he ran until 1969, when he disbanded it in the face of dangerously high stock market valuations.
In 1965, he bought ailing textile firm Berkshire Hathaway. It was to become a holding company for a range of investments in media, insurance and consumer companies. He bought many of them at very low prices in the 1973-4 recession. This helped to keep his rates of return well ahead of the market during the Seventies and early Eighties.
Buffett was already a legend in the investment community by the time he bought a huge stake in Coca-Cola in 1988. But it was not until the success of that purchase that he became a folk hero too. He has since become a symbol of all that is best about the old-fashioned, down-to-earth values of mid-Western America. A gift for witty anecdote and example, displayed in college lectures and annual reports, has helped to spread his reputation far beyond the confines of Wall Street and the happy band of investors he has turned into millionaires.
Long-term returns
Buffett is widely regarded as the most successful investor of all time, with a compound return of around 22.3% over 36 years.
Biggest success
Buffett's purchase of Coca-Cola has made his investors a profit of around 800% over 12 years. Less well-known is his investment in advertising group Interpublic in 1973, which brought gains of over 900% in a little over 11 years.
Method and guidelines
Shares are not mere pieces of paper. They represent part-ownership of a business. So when contemplating an investment, think like a prospective owner. Focus on the underlying business, not the stock. What does it do? How well does it do it?
Stick to businesses you understand. Otherwise, you will never be able to grasp the true value of what you own.
There are only a few businesses worth buying. The world is divided into a handful of great businesses and a mass of poor or mediocre ones. Narrow your search down to the former."An investor should act as though he had a lifetime decision card with just twenty punches on it. With every investment decision his card is punched, and he has one fewer available for the rest of his life."
The best businesses are like toll bridges, which their customers have to pay to cross if they want to reach their destination. This enables them to piggyback on the growth of other, less fortunately placed businesses.
Most companies have to advertise to make their customers aware of their products and services, which means advertising companies cream off a steady percentage of their sales growth in the form of fees.
Most men have to shave their faces daily, and most women shave their legs. As the world's leading producer of razors, Gillette has a lock on a market that will never disappear, and is expanding in line with the world's population.
Great businesses enjoy the following characteristics:
Simplicity - they are easily understood, and straightforward to manage
Strong business franchises - they benefit from 'economic goodwill', i.e. the ability to keep raising prices above the level of inflation
Predictability - their earnings can confidently be projected into the future
High returns on capital - achieved without resorting to creative accounting or excessive debt. This is even more important than headline earnings.
Strong cash generation - they throw off cash and do not require heavy reinvestment in assets simply to stay in business, enabling them instead to invest the cash in pursuit of even greater profits.
Devotion to shareholder value - the management has a significant amount of its own capital tied up in the business, and thinks of shareholders as fellow owners whose interests are identical to their own.
Estimate the intrinsic value of the business. Price is what you pay, value is what you get. Allow a sufficient 'margin of safety' between the two, so that, in effect, you are paying 50p or 60p for £1 of value. That way, you will still be able to make a good return if your estimates err on the high side.
Buffett uses a calculation known as 'discounted cash flow', or DCF for short. This involves estimating the future cash flows of the business, and discounting these back to a present-day value by applying the rate of return you could otherwise get, with no risk, by putting your money into a benchmark bond, say 10-year UK gilts. This shows whether there is a gap between the current and projected values of the business which is wide enough to give you your margin of safety.
Click here for an example of a DCF analysis of Guinness adapted from The Warren Buffett Way by Robert Hagstrom.
Ignore the gyrations of the stock market. Buffett has said that, after buying a stock, he would not care if the market shut down altogether for ten years, since he is sufficiently confident of the intrinsic value of his holdings that he does not need the market to confirm it for him.
Sell only on one or more of the following conditions:
If the company's intrinsic value is not increasing at a satisfactory rate
If the market value of the company vastly exceeds its estimated intrinsic value
When you need the cash to invest in a company that is even more attractive on the basis of the gap between its intrinsic and market values.
Key sayings
"Rule Number One: Never lose money.Rule Number Two: Never forget Rule Number One."
"Ben Graham said: 'Investment is most intelligent when it is most businesslike.' These are the nine most important words ever written about investing."
"A good business is not always a good purchase, although it is a good place to look for one."
"I would sooner buy a great business at a fair price than a fair business at a great price."
"When a management with a reputation for brilliance tackles a business with a reputation for poor economics, it is the reputation of the business that stays intact."
Further information
Buffett has, alas, not yet written a full-length book of his own. But his annual reports and speeches have been published as The Essays of Warren Buffett (1998). You can also visit his website www.berkshirehathaway.com. The most readable how-to-copy-Warren guide is Robert Hagstrom's The Warren Buffett Way (1994), which he followed up with The Warren Buffett Portfolio (1999). Here in the UK, the monthly magazine Analyst uses stock selection methods modelled closely on Buffett's.
2. T Rowe Price
Job description
Until his retirement in the late Sixties, Price was the head of the investment firm he founded, T Rowe Price Associates. The firm still exists today and operates out of Baltimore, Maryland, USA.
Investment style
Cyclical investor in long-term growth companies, buying at the bottom of the business cycle and selling at the top. In later life, Price switched to a more value-driven style, investing in steady-growth, oil and gold stocks.
Profile
Price was a strong-willed and egotistical man. He never deviated from the daily agenda he set himself, nor from his decisions about when to buy and sell stocks. He demanded the same zeal and discipline from his employees. This unforgiving work ethic turned his firm into one of the largest asset managers of his day.
Price was very much an entrepreneur rather than a manager. He liked to start a fund, establish it and then move on to launch another one. Some of his most famous funds are still running today: T Rowe Price Growth Stock, New Horizons and New Era. His favourite companies, such as Avon Products and Black and Decker, actually became known as 'T Rowe Price stocks'.
But he sold the business to his associates when he saw that the prices of this group of companies were reaching absurd levels in the late Sixties. He himself changed to a more cautious and diversified approach, buying bonds and stocks from the energy and commodity sectors. The 1973-4 bear market proved the wisdom of this decision. His family portfolios soared, while those of his old firm collapsed.
Long-term returns
Price published a sample family portfolio to show how he had turned $1,000 invested in 1934 into $271,201 by the end of 1972 - a compound return of about 15.4% over 39 years.
Biggest success
Price's sample portfolio contained many striking successes. Among the most remarkable was pharmaceuticals firm Merck, bought for the equivalent of 37.5 cents in 1940 and still held 32 years later at $89.13 - a compound growth rate of about 18.6%, even without any reinvestment of dividends.
Method and guidelines
Like people, companies pass through three phases in their life cycle:
Growth
Maturity
Decadence
Look for companies in the earliest identifiable phase of growth. This growth is of two kinds:
Cyclical - growth in unit volumes of sales and in net earnings, which peaks at progressively higher levels at the top of each succeeding business cycle. These stocks are ideal for investors looking for capital gains during the recovery stage of the business cycle
Stable - growth in unit volumes and in net earnings, which persists through the downturn in the business cycle. These stocks are suitable for investors who need relatively stable income.
Concentrate on industry leaders. These can usually be identified by their competitive advantages, including:
Outstanding management
Leading-edge research and development
Patents, licences and other legally enforceable product rights
Relative protection from government regulation
Low labour costs, but good labour relations
These advantages usually go hand-in-hand with
A strong balance sheet
A high return on capital (at least 10%)
High profit margins
Consistently above-average earnings growth.
If these financial ratios are improving, that is often a good indicator that the company is still in its growth phase.
The best time to consider buying is when growth stocks are out of fashion. As a group, their P/E ratio will have fallen to roughly the same level as the market. Consider buying when the P/E is about 33% higher than the lowest point it has reached at the bottom of the last few cycles. Continue buying ('scaling in') until the price starts to rise strongly above this initial level.
The time to start selling is when the stock is 30% above your upper buying price limit. Sell off your stock gradually ('scale out') as the price continues to advance. (Price himself sold 10% every time the price rose 10%. Smaller investors may need to think in terms of selling 25-33% on each 20% advance.)
Also consider selling if
You can be reasonably certain the bull market has peaked
The company appears to be entering its mature phase
The company reports bad news
The stock price collapses on widespread selling.
Key sayings
"Even the amateur investor who lacks training and time to devote to managing his investments can be reasonably successful by selecting the best-managed companies in fertile fields for growth, buying their shares and retaining them until it becomes obvious that they no longer meet the definition of a growth stock."
"'Growth stocks' can be defined as shares in business enterprises that have demonstrated favourable underlying long-term growth in earnings and that, after careful research study, give indications of continued secular growth in future...Secular growth extends through several business cycles, with earnings reaching new high levels at the peak of each subsequent major business cycle..."
Further information
Start with John Train's profile in The Money Masters (1980). For Price's own views, see the extract 'Picking 'Growth' Stocks' in The Investor's Anthology, edited by Charles Ellis
3. Philip A Fisher
Job description
Investment advisor at his own San Francisco-based firm.
Investment style
Ultra long-term buy-and-hold investor in technology growth stocks.
Profile
After training as an analyst in a San Francisco bank, Phil Fisher started his own investment advisory business in 1931. He has always specialized in the type of firm for which California is best known: innovative technology companies driven by research and development. But he began almost 40 years before the name Silicon Valley was even thought of.
The firms he bought for his clients then were relatively low-tech, such as Dow Chemical or Food Machinery Corporation. Later on, he was one of the first professional investors to recognize the merits of hi-tech firms like Motorola and Texas Instruments when they were starting out.
Now in his nineties, he is still working in the same way he has always done. He is an extremely logical and methodical man, who only selects companies for purchase after a painstaking process of trawling through trade literature and interviewing managers and competitors. But he also has an unconventional and contrarian turn of mind, which helps him to spot value before the crowd.
Long-term returns
Not known.
Biggest success
Fisher acquired a lot of stock in Texas Instruments in 1956, long before it went public in 1970. It was first quoted at around $2.70, and has recently gone as high as $200 - a rise of 7,400% even without dividends. Fisher's own gains have probably been significantly higher, given that he bought the shares privately.
Methods and guidelines
Concentrate your attention and your cash on young growth stocks.
In order to identify and research promising prospects,
read everything you can lay your hands on, from trade journals to brokers' reports
interview those in the know, such as managers and employees, but especially suppliers, customers and competitors, who will be more forthcoming
visit various company sites if you can, and not just the headquarters.
Before you buy, make sure you get satisfactory answers to 15 key questions:
Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
How effective are the company's research and development efforts in relation to its size?
Does the company have an above average sales organization?
Does the company have a worthwhile profit margin?
What is the company doing to maintain or improve profit margins?
Does the company have outstanding labour and personnel relations?
Does the company have outstanding executive relations?
Does the company have depth to its management?
How good are the company's cost analysis and accounting controls?
Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
Does the company have a short-range or a long-range outlook in regard to profits?
In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
Does the management talk freely to investors about its affairs when things are going well, but 'clam up' when troubles and disappointments occur?
Does the company have a management of unquestionable integrity?
Source:Common Stocks and Uncommon Profits, P Fisher, 1958
There are only ever three reasons to sell:
If you have made a serious mistake in your assessment of the company
If the company no longer passes the 15 tests as clearly as it did before
If you could reinvest your money in another, far more attractive company. But before you do this, you must be very sure of your reasoning.
Key sayings
"I don't want a lot of good investments; I want a few outstanding ones."
"The greatest investment reward comes to those who by good luck or good sense find the occasional company that over the years can grow in sales and profits far more than industry as a whole."
"The business 'grapevine' is a remarkable thing. It is amazing what an accurate picture of the relative points of strength and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company."
"If the job has been correctly done when a common stock is purchased, the time to sell it is - almost never."
Further information
Fisher outlined his views and methods in the book Common Stocks and Uncommon Profits, first published in 1958. The 1996 edition published by J Wiley also comprises two shorter pieces, 'Conservative Investors Sleep Well' and 'Developing an Investment Philosophy', a highly educational account of his early experiences.
4. Kenneth L Fisher
Job description
Founder and CEO of Fisher Investments, a California-based investment advisory firm deploying a global, top-down, dynamic asset allocation strategy. Ken Fisher also serves as Chief Investment Officer heading the three-member Investment Policy Committee overseeing all strategic investments decisions across the firm. Fisher Investments manages billions of dollars for high net worth investors and institutional investors globally.
Investment style
Top-down, global, and dynamic. Fisher doesn’t adhere to a static size or style, but positions portfolios based on client objectives and forward-looking expectations.
Profile
Ken Fisher is the youngest of Philip Fisher's three sons. After graduating from college in 1972, Ken initially worked for his father's investment firm. However, he left his father’s firm and in 1979 founded Fisher Investments as a sole proprietorship, later incorporated and then reorganized into a limited liability company. Phil Fisher was a noted growth investor. Initially Ken Fisher embraced a value philosophy. His was one of the first firms to offer small-cap value investing, having helped define the category institutionally. Ken Fisher pioneered the Price to Sales Ratio, as documented in his 1984 book Super Stocks. This concept is now a core element of financial curriculum.
Ken Fisher started writing the “Portfolio Strategy” column in Forbes magazine in 1984, and in 2009 celebrated his 25th year as a Forbes columnist.
Through the decades, Ken Fisher evolved from a primarily small cap value investor to being style-agnostic and global by the early 1990s. He is a top-ranked market forecaster according to independent third party CXO Advisory Group*. He has been published or written about in many US, British, and German financial newspapers and magazines, and his academic research has been showcased and awarded in financial journals, including The Financial Analysts Journal and The Journal of Portfolio Management including a coveted Bernstein Fabozzi/Jacobs Levy award for outstanding research.
As of 2009, Ken Fisher has written six books on investing and wealth accumulation, including best sellers The Only Three Questions that Count, The Ten Roads to Riches, and How to Smell a Rat. His 1984 book Super Stocks was the best selling investment book that year.
Long-term returns
Not known.
Biggest success
As chronicled in his monthly Forbes column, Ken Fisher called the top of the tech bubble on March 6, 2000, and predicted three of the last four recent bear markets (1987, 1990, 2000).
Method and guidelines
As detailed in his 2006 best seller The Only Three Questions That Count, investing is a science, not a craft. As such, investors need a framework for ongoing scientific discovery. Ken Fisher’s query method is to ask three questions:
What do I believe that’s actually false?
What can I fathom that others find unfathomable?
How is my brain tripping me up?
The first question allows Ken Fisher to identify myths that most investors believe. He believes that if most investors believe X causes Y, but he can prove X doesn’t cause Y, when he sees X happening, he can bet against Y and win more often than lose. For example, using this method Ken Fisher has proven that, contrary to the popular belief that rising oil prices drive stocks down, the prices of oil and stocks have no meaningful correlation.
The second question helps uncover profitable relationships most investors can’t see. For example, if most investors believe X causes Y, but Ken Fisher discovers X doesn’t cause Y, Ken Fisher seeks to prove if X perhaps causes Q or Z. Then, when he sees X happening, he can bet on Q or Z while everyone else is betting incorrectly on Y. For example, using this method Ken Fisher uncovered data showing that high US federal budget deficits have led to above average stock market returns.
The third question falls in the realm of behavioral finance, a field of study Ken Fisher has helped pioneer. Ken Fisher believes humans’ brains are hard-wired to contend with basic problems of human survival, and humans don’t deal well with counter-intuitive problems like investing. According to his research, human instinct often leads to poor decision-making in investing. For example, myopic loss aversion is a common cognitive error that Ken Fisher finds leads investors to move to avoid near-term losses at the expense of longer-term goals.
Key sayings
“Your biggest investing enemy is your brain.”
“A good way to think about successful investing is it’s two-thirds not making mistakes, one-third doing something right.”
“I call the stock market The Great Humiliator. It wants to humiliate as many people as it can, for as long as it can, for as many dollars as it can.”
Further information
Fisher Investments has entered a partnership with publisher John Wiley & Sons to do the first ever publishing imprint by a money manager - Fisher Investments Press. Ken Fisher has published two titles under this new publishing imprint: 2008’s The Ten Roads to Riches and 2009’s How to Smell a Rat. The imprint has published six books authored by Fisher Investments staff including, Own the World by Aaron Anderson, 20/20 Money by Michael Hanson, and four “On” series books: Fisher Investments on Energy, Fisher Investments on Materials, Fisher Investments on Consumer Staples, and Fisher Investments on Industrials.
Fisher Investments produces a daily financial news and commentary website at MarketMinder.com.
Fisher Investments also has a wholly-owned subsidiary in the UK, Fisher Wealth Management, and a joint venture affiliate in Germany, Grüner Fisher Investments GmbH.
*CXO Advisory Group ranking is based on Ken Fisher’s personal market forecasts and stock picks as published in his Forbes column, and does not reflect the performance of Fisher Investments. Fisher Investments has no affiliation with CXO Advisory Group.
5. Jim Slater
Job description
No official position. Slater manages his own money through a private company.
Investment style
Flexible, but he is best known as for his interest in stocks that offer growth-at-a-reasonable-price (GARP).
Profile
Slater trained as an accountant. He first became interested in investment in the Sixties, while a director at a British Leyland subsidiary. After publicising his methods via a column in the Sunday Times, he launched the investment conglomerate Slater Walker, which he chaired until 1973. The company was known for its aggressive acquisitions in every area from banking to property. It collapsed in the 1973-4 recession, leaving Slater bankrupt to the tune of about £4m in today's currency.
He fought his way back to prosperity through private property deals and writing for small investors. In 1990, he published his main work, The Zulu Principle. This popularised the use of a financial ratio devised in America, known as the PEG, or Price:Earnings Growth Ratio. He has since devised a monthly publication called Company REFS (Really Essential Financial Statistics), which helps investors to apply his system by listing PEGs and other key ratios and information on all UK companies.
Now living in Surrey, but far from retired, Slater is still very active in educating investors through his books and lectures. He is also a major shareholder in a variety of small companies, and puts a good deal of money into charitable causes and sports sponsorships.
Long-term returns
Not known.
Biggest success
Slater's own sharedealings are mostly private. But in 1996-7, he is known to have built up a substantial holding in Blacks Leisure. After selling a lossmaking division, this sports retailer staged a spectacular recovery from around 50p to a high of 549p just 17 months later in May 1997, delivering gains of 1,000%.
Method and guidelines
The stock market is a constantly unfolding drama which shifts repeatedly from scene to scene as conditions fluctuate. It is thus unwise to stick rigidly to any one method or type of asset. However, advises Slater:
"I suggest that for most private investors their first (and possibly final) area of specialisation should be growth shares. They are by far the most rewarding investments. The upside is unlimited and, if the right companies are picked, the shares can be held for many years, during which they should multiply the original stake many times."Source: The Zulu Principle
The best shares to buy are those with high forecast earnings growth and a relatively low prospective P/E, i.e. a low Price:Earnings Growth ratio (PEG). A share is reckoned to be fair value when this ratio is 1.0. Search for shares with PEGs
no higher than 0.75.
ideally, 0.66 or lower.
Forward P/E15
Forward EPSgrowth (%)÷ 20
Forward PEG= 0.75
The appeal of a low PEG is that it offers scope for the shares to earn a higher P/E (known as a 're-rating') once the market recognises the earnings potential. Thus the price should rise by the same percentage as the earnings, plus a higher multiple of those earnings - a 'double whammy' effect.
When selecting shares, rely on figures and financial ratios rather than qualitative judgment. Click here for a list of quantitative criteria.
(Ask your broker for all the relevant figures, or consult Company REFS. You can find forecast EPS and P/E ratios on the Companies page of the Hemmington Scott website by clicking on 'Brokers' Consensus'.)
Consider selling when one of the following occurs:
The prospective PEG reaches 1.2 or higher.
The story changes for the worse, such that the figures and factors that first attracted you to the company no longer apply
An even more attractive investment opportunity presents itself.
Key sayings
"Become as expert as possible in your chosen niche market. You will achieve your objective, like Montgomery and Napoleon before him, by concentrating your attack."
"Investment is the art of the specific and selection is far more important than timing."
"The price of growth shares can only increase due to earnings growth and a status change in the multiple [the P/E ratio]. The latter is often much more important than the former."
"Elephants don't gallop - but fleas can jump to over two hundred times their own height"(i.e. smaller companies tend to grow much more rapidly than larger ones).
Further information
Start by reading Slater's primer, Investment Made Easy and visiting his webpages. These will prepare you for the more advanced material in The Zulu Principle and Beyond the Zulu Principle. After that, you may wish to sample Slater's monthly newsletter Investing for Growth.
6. Peter Lynch
Job description
Now retired, Lynch secured his reputation as one of the most successful fund managers in history while in charge of the Fidelity Magellan fund between 1977 and 1990.
Investment style
Highly active investment in a variety of stocks, with special emphasis on growth and recovery stories, and holding periods ranging from a couple of months to several years.
Profile
Lynch only ever worked for Fidelity, the international investment management firm based in Boston. He started as an analyst in 1969, was promoted to director of research in 1974, and took over the Fidelity Magellan fund in 1977. At the time, it had $22m in assets. By 1990, when he decided to take early retirement in order to spend more time with his family, its value had swollen to $14bn. No manager in history has ever run so large a fund, so successfully, for so long.
His secret was a punishing work schedule, lasting six and sometimes seven days a week, in which he talked to dozens of company managers, brokers and analysts every day. With a total staff of just two research assistants, he ran a portfolio of up to 1,400 stocks at any one time. Some he bought at an early stage of growth or recovery and held for years. The majority he became dissatisfied with and sold within months, admitting that over half his choices were mistakes.
Although you cannot copy his portfolio management style, Lynch is adamant that any small investor can research stocks better than most professionals, and make smarter decisions about what to buy. This is because he or she is often better placed to spot potentially profitable investments early, and is always free to act independently, rather than constrained by committees, trustees and superiors.
Long-term returns
During his tenure at Magellan, Lynch averaged 29% compound over 13 years. This remains a record for funds of this size.
Biggest success
The biggest successes Lynch lists in his book Beating the Street were all small growth companies when he bought them: Rogers Communications Inc, a 16-bagger, Telephone Data Systems, an 11-bagger, and plastic cutlery manufacturer Envirodyne and King World Productions, both tenbaggers. The last of these is Oprah Winfrey's production company, and also owns the TV rights to Wheel of Fortune and Double Jeopardy.
Method and guidelines
Firstly, keep your eyes and ears open for ideas.
Lynch's key concept is that you can spot investment opportunities all around you, if only you concentrate on what you already know and are familiar with. Maybe you notice a crowded shop or restaurant, or your neighbours all start buying a new make of car, or a nearby factory suddenly seems to be expanding - all these may be pointers to companies on the stock market that are worth further investigation.
Among your best sources of information are:
Your job, which familiarizes you with your company, its customers and its suppliers
Your hobbies and leisure pursuits, from sport to shopping
Your family and friends, thanks to all their jobs and hobbies
Your observation and experience of companies in your home town.
Secondly, categorize your ideas
Companies can be categorized into 6 main types:
Slow growers - raising earnings at about the same rate as the economy, about 2-4% a year.
Stalwarts - good companies with solid EPS growth of 10-12%
Fast growers - small, aggressive new companies growing 20-25% or more.
Cyclicals - whose earnings rise and fall as the economy booms and busts
Turnarounds - companies with temporarily depressed earnings, but good prospects for recovery.
Asset plays - companies whose shares are worth less than their assets, provided these assets could be sold off for at least book value.
Source: One Up on Wall Street, P Lynch, 1989
Consider concentrating your efforts on finding fast growers. If bought at the right price, some of these can become 'tenbaggers' - shares that multiply your investment ten times over. Otherwise, look for turnarounds and perhaps the occasional asset play.
Consider trying to avoid holding cash. It is better to stay fully invested by putting any spare money into stalwarts. That way, you will not miss out on rising markets.
Avoid slow growers (too unprofitable) and cyclicals (too hard to time).
Thirdly, summarize the story behind your stock.
Prepare a 2-minute monologue about the stock you have in mind, describing
The reasons you are interested in it
What has to happen for the company to succeed
The obstacles that might prevent its success.
This is the stock's 'story'. Make sure it is simple, accurate, convincing, and appropriate for the category of stock in question. For example, 'if it's a fast grower, then where and how can it continue to grow fast?'
Fourthly, check the key numbers.
If you are excited by a particular product or service, check it accounts for a sufficient percentage of total sales to make a significant difference to profits.
Favour companies with a forecast P/E ratio well below their forecast EPS growth rate (i.e. a low PEG ).
Favour companies with a strong cash position.
Avoid companies with a high debt-to-equity ratio ('gearing'), especially if the debt takes the form of bank overdrafts, which are repayable on demand, rather than bonds, which are not.
In the case of stalwarts and fast growers, look for a high pretax profit margin. In the case of turnarounds, look for a low one with the potential to rise.
Fifthly, base your buy and sell decisions on specifics.
Your profits and losses do not depend on the economy as a whole. They depend on the factors specific to the stocks you hold. So ignore the ups and downs of the market.
Buy whenever you come across an attractive idea, with a compelling story behind it, at an attractive price.
Consider selling stalwarts when their PEGs reach around 1.2-1.4, or when the long-term growth rate starts to slow.
Consider selling fast growers when there appears to be no further scope for expansion, or expansion starts to produce only disappointing sales and profits growth, or when their PEGs reach around 1.5-2.0.
Consider selling asset plays when they are taken over, or when assets that are sold off fetch lower than expected prices.
Key sayings
"If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighbourhood shopping mall, and long before Wall Street discovers them."
"The very best way to make money in a market is in a small growth company that has been profitable for a couple of years and simply goes on growing."
"The way you lose money in the market is to start off with an economic picture."
"You don't get hurt by what you do own that goes up. It's what you do own that kills you."
Further information
Lynch has written two extremely accessible books: One Up on Wall Street (1989) and Beating the Street (1993). The first ranks as one of the best investment primers ever for small investors. The second looks more closely at his time at Fidelity Magellan. A simplified account of his methods is given by John Train in The New Money Masters (1989)
7. Ralph Wanger
Job description
President of the Chicago-based Acorn Fund, run by investment firm Harris Associates.
Investment style
Theme-driven investment in smaller growth companies for the medium to long term.
Profile
After a brief period in insurance, Wanger joined Harris Associates in 1960 as an analyst. Later he became a portfolio manager. In 1970, he was put in charge of the Acorn Fund. He has since turned this into one of the top-performing growth funds of the last 30 years.
In the six months after its launch, the Acorn Fund lost over a third of its value in the most severe market downturn since the Thirties. Thankfully, the market recovered in the second half of the year and the fund survived. But the experience taught Wanger the value of a light-hearted approach to the vagaries of the market.
He subsequently became famous for his amusing quarterly reports:"Some people have written to tell me they became shareholders just so they can receive the reports, which makes the quarterlies the world's most expensive literary magazine."
He recently summarized his time at the fund in his book A Zebra in Lion Country (1999).
Long-term returns
The Acorn Fund returned 17.2% annually between 1970 and 1998, against a return from the S&P500 index of 14.4%.
Biggest success
Wanger has made big money from many unglamorous small companies. One is International Game Technology, the world's leading maker of slot machines. He paid $1 a share for it in 1988, when new management had just taken over and were planning a new range of electronic slot machines. In 1993, the stock hit a high of $40.
Method and guidelines
Concentrate on spotting trends that will last for at least 4-5 years.
Your life is driven by strong economic, social and technological trends. These also drive corporate sales and profits. When thinking of investing, start by looking around you and picking out those trends you think will be the most important and longest-lasting. Wanger's own favourites include:
the information revolution, and particularly its impact on costs
the expansion of world telephone and data networks
the business of leisure, boosted by affluent older baby-boomers,
outsourcing, as companies strip down to their core functions
money management, essential for the future wealth of an aging world.
Think small.
Smaller companies as a group have made far more profitable investments than larger ones. Although you cannot buy large numbers of them, try to focus your research on the best prospects in this group. Consider avoiding micro companies - they can be too risky. (In the UK, this means sticking to companies with a capitalization of about £30m-£250m.)
The best small companies are those that dominate their chosen niche. Their characteristics include:
growing markets for their products
good design
efficient, low-cost manufacturing
outstanding, entrepreneurial management
skilled marketing
high profit margins.
Look downstream for the best profits.
T Rowe Price focused on the leaders in growth industries. But the best money is often to be made by the downstream beneficiaries of a growth business. To use the old cliché, it wasn't the prospectors that made the money in the Yukon gold rush, it was those who sold them the picks and shovels.
Example
Rather than investing in semiconductor companies like Intel that manufactured microchips, Wanger went for cellular telephone companies that built their products into handsets.
Insist on financial strength.
Growth can only be sustained by companies with strong finances. It will be undermined by those that have to guzzle cash to feed their growth. So
Check the balance sheet to see if there is too much debt, or rising debt
Check that other liabilities, such as pension payments, are reasonable
Look for real cash generation, not simply accounting profits
As a rule, avoid turnarounds, start-ups and new issues, which tend to be weakly financed, especially if they are blue-sky tech companies.
Insist on fundamental value.
A good company is not necessarily a good stock unless it is attractively priced. Look for companies that are cheap in relation to their earnings-growth potential.
A crude measure of potential is the PEG
A better measure is to estimate the likely earnings per share 2 years ahead and multiply that by the likely P/E to arrive at a probable value. P/E ratios will be higher if interest rates are lower, and vice versa.(Professionals calculate this using a 'dividend discount model'.)
Sell only reluctantly.
If you have done your homework, you should be able to hold stocks for at least 4-5 years as a trend plays out. Wanger himself only turns over about one-quarter of his portfolio each year.
Sometimes, though, the P/E will rise to dangerous levels. Then you should consider selling some or all of your stock to reduce risk. Wanger sold International Game Technology when its P/E reached 40 and its estimated growth rate was 25%.
"In real-life portfolio management, sell decisions are often tough. You can't really apply hard-and-fast rules. Instead, you have to continually re-evaluate each situation."Source: A Zebra in Lion Country
Key sayings
"First I determine themes that will be played out over the next several years. Then I identify groups of stocks that reflect those themes."
"What I don't want are me-too companies that rank fifth or sixth in their industry, because their profit margins will rarely be as good as those of the industry leaders."
"Going downstream - investing in the businesses that will benefit from new technology rather than in the technology companies themselves - is often the smarter strategy."
"Assume that one of your eccentric friends who runs a large bank has just offered to lend you a great deal of money at about 10 percent interest, with which you may tender for all the stock of the company you are studying at the current market price. If you study the company and say 'Boy, this is terrific! Give me the loan and I'll do it. I'll quit my job and go run that company. It's a tremendous bargain,' then you probably have a good stock."
Further information
John Train profiled Wanger in The New Money Masters(1989). One of the appendices contains some fine extracts from the quarterly reports. Wanger himself brings the story up to date in A Zebra in Lion Country (1999)
8. William O'Neil
Job description
Chief Executive Officer, William O'Neil and Company, an advisory firm based in Los Angeles, California, USA.
Investment style
Growth stock trader with medium-term horizon (2-5 years).
Profile
O'Neil started out in 1958 as a stockbroker. During his three years in the job, he made a careful study of the top-performing mutual funds - the US equivalent of our unit and investment trusts. He discovered their success was entirely due to buying stocks that were setting new highs in price. In the language of chartists, they were 'breaking out' of previous holding patterns or 'consolidations'. Many of them would then go on to make advances of many tens or even hundreds of percent.
He decided to copy this method. Within a year or so, he had turned $5,000 into $200,000. In 1963, he bought a member's seat on the New York Stock Exchange and founded the firm he still runs today. He was one of the famous 'performance' fund managers of the Sixties, and a pioneer of database-driven stock selection. His company still supplies a wide variety of statistics and data to professional investors.
In 1983, he launched a financial newspaper to rival the Wall Street Journal, called Investor's Daily. Against the odds, this has become a widely-read and well-respected alternative to its venerable competitor. Part of its appeal rests on its unique data tables, which also underpin his own investment approach and his advice to clients.
Long-term returns
O'Neil's track record has had its ups and downs, particularly during and just after the 'go-go' years of the Sixties. But he is thought to have averaged an annual return of over 40% on his personal account in the ten years up to 1989.
Biggest success
One of O'Neil's earliest coups was in the drug stock Syntex. The company was the first mass manufacturer of the birth control pill at the start of the 'sexual revolution'. It had just announced quarterly earnings growth of 300% when he bought the stock in 1963. As the market woke up to the potential, the price rocketed from $100 to $550 in 6 months, making him enough money to set up his own business.
Method and guidelines
Like Jim Slater, O'Neil relies on a mixture of quantitative and qualitative criteria to pick stocks. His method has to be adapted for use in the UK, to allow for differences in accounting practice and the lesser availability of financial statistics. But his basic approach to trading is as applicable here as in the US. The key idea is to seek out only those growth stocks that have the greatest potential for swift price rises from the moment you buy them. In essence, buy the strong, sell the weak.
He suggests you remember the seven criteria listed below by the acronym C-A-N-S-L-I-M, adding that investment is like dieting: anyone can manage it with a little effort and discipline.
C = Current quarterly earningsLook for companies that have just announced quarterly earnings increases of 40-500% (Here in the UK the equivalent is interim or annual increases).
A = Annual earnings increasesLook for companies with at least 5 years of prior growth, at a compound rate of no less than 25%. Prefer those with the most consistent growth. The P/E ratio is relatively unimportant. On average, it may range from 20 to about 45.
N = New products, new management, new highsThe best stocks have a new story behind them, such as new and exciting products or new directors. They are also breaking out to new highs. On a chart, they typically form a shape that looks like 'a cup with a handle'. Click here for an example.
S = Supply and demandThe less stock there is to buy, the more any buying will drive up the price. Look for companies with around 10-25 million shares in issue. Watch for a rise in the amount of shares traded ('volume') of at least 50% above average.
L = Leaders and laggardsStick to the 2 or 3 stocks showing the highest relative strength in their sector. They should have outperformed 80-90% of all other stocks in the last 12 months. Stay away from those that have underperformed for more than 7 months.
I = Institutional sponsorshipIdentify the 3-10 best performing institutional investors. Check out the stocks they are buying as candidates for your own portfolio. Favour companies which are 'underowned' by the professionals (i.e. 10% or less of the shares belong to institutions).
M = Market directionCheck the market daily for early signs of any major downturn. (O'Neil discusses various indicators of this in his book How to Make Money in Stocks. But it needs to be said these can be unreliable in practice). Consider trying to avoid making new purchases once a decline of 10% or more gets underway.
Source: How to Make Money in Stocks, W O'Neil, 1988.
Follow a strict stoploss policy. O'Neil suggests selling any stock that has dropped 7-8% below the price you paid. Consider looking at doing this automatically.
Consider selling stocks that have not risen 20% or more after 13 weeks. And consider holding those that have risen 20% in 4-5 weeks. These may go on to be the biggest winners of all.
In the case of stocks you have held for some time, sell after any sudden and rapid climb of 25% or more in 1-2 weeks. This generally happens when good news or rosy publicity causes investors to become too enthusiastic about the stock. Take advantage by taking your profits. (In all, O'Neil lists 35 rules for profit-taking. Most of them are variants on the basic theme: 'Sell into strength'.)
Consider looking to avoid low-priced penny shares, options and new issues. These are mostly gambling chips, with only occasional potential for really big profits.
Key sayings
"The whole secret to winning and losing in the stock market is to lose the least amount possible when you're not right."
"Always sell your worst stock first."
"What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower."
"History will repeat itself."
Further information
O'Neil's book How to Make Money in Stocks is a must-read for growth stock investors and traders. He makes some additional points in 24 Essential Lessons for Investment Success. Market Wizards by Jack Schwager contains interesting interviews both with him and with his right-hand man, David Ryan. For details of O'Neil's newspaper, visit the website Investors.com.
9. Sir John Templeton
Job description
Retired, but formerly head of Templeton Investment Management.
Investment style
Deep-value contrarian with truly global perspective.
Profile
John Templeton was born into a poor Tennessee family. Shortly before the war, he joined a brokerage in New York. His first investment coup was to turn $10,000 borrowed from his boss into $40,000 over 4 years. His strategy was to buy all the 104 US stocks that were selling for less than $1 at the outbreak of the war.
Shortly afterwards, he launched his own investment advisory firm. At the age of 56, he sold this and started again with a single fund - Templeton Growth - based in Nassau in the Bahamas. This became the top performer among all US funds over the following twenty years. High on the list of reasons for its success was Templeton's ability to spot opportunities abroad before the crowd, e.g. Japan in the early Sixties, Canadian property in the Seventies.
Now retired, Templeton continues to live in Nassau and take an active interest in investment. As a committed Christian, he believes his financial success and philanthropic achievements have been closely linked to his own spiritual development.
Long-term returns
From 1954-2000, the Templeton Growth Fund averaged gains of around 15% a year.
Biggest success
Since Templeton's value-based methods have led him to buy large numbers of stocks, individual successes have been less important than overall averages. Perhaps his most remarkable move was to invest heavily in Japan in 1962. It went on to become the world's most dynamic market in the years up to 1990.
Method and guidelines
Templeton has distilled his principles of investment success into ten maxims, which still act as the basis of his old firm's culture and share selection process:
Invest for real returnsThe true objective for any long-term investor is maximum total real return after taxes.
Keep an open mindNever adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded and sceptical...
Why follow the crowd?If you buy the same securities as other people, you will have the same results as other people... To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.
Everything changesBear markets have always been temporary. And so have bull markets...
Consider avoiding the popular...Too many investors can spoil any share selection method or any market timing formula.
Learn from your mistakesThis time is different are among the most costly four words in market history.
Buy during times of market pessimism...The time of maximum pessimism can be the best time to buy, and the time of maximum optimism can be the best time to sell.
Hunt for value and bargains...In the stock market, the only way to get a bargain is to buy considering what most investors are selling.
Search worldwide...If you search worldwide, you will find more bargains and better bargains than by studying only one nation...
No-one knows everythingAn investor who has all the answers doesn't even understand the questions.
Source: Templeton Maxims, published by Templeton Investment Management Limited
The four key factors to consider in fundamental analysis of any company are:
The P/E ratio in relation to other comparable companies
Operating profit margins, particularly if they are rising
Liquidating value, i.e. the price the firm would fetch if sold off
The average growth rate of earnings, and especially the consistency of growth. In general, avoid buying companies whose earnings slip two years in a row. Also steer clear of those growing at an unsustainable pace.
When deciding which countries to invest in,
Avoid those plagued by socialist policies and/or inflation
Favour those with high long-term growth rates
Especially favour those showing a trend towards economic liberalisation, e.g. privatisation, anti-union legislation, greater openness and transparency in stock market dealings.
Key sayings
"History shows that time, not timing, is the key to investment success. Therefore, the best time to buy stocks is when you have money."
"I never made money for clients by buying anything expensive."
Further information
A good account of the man and his methods is given by John Train in Chapter 7 of The Money Masters (1980). Free booklets describing the organization and its history are occasionally issued by Templeton Investment Management, Saltire Court, 20 Castle Terrace, Edinburgh EH1 2EH, tel 0131 469 4000.
10. John Neff
Job description
Until his recent retirement, manager of the Vanguard Windsor Fund, now run by Vanguard Mutual Funds of Chicago, Illinois, USA.
Investment style
Hard-core value investment, based on buying good companies with moderate growth and high dividends while out of favour, and selling once they rise to fair value.
Profile
Neff is known as 'the professional's professional', because many fund managers entrusted their money to him in the belief that it would be in safe hands. That view was justified by his remarkably consistent performance. For more than 30 years, the Windsor Fund routinely featured in the top 5 percent of all US mutual funds.
Neff studied industrial marketing at college, but attended night classes to get a degree in banking and finance. In 1954, he became a securities analyst with the National City Bank of Cleveland. Both there and at his next firm, Wellington Management, he pursued a value style of investment modelled on the writings of Ben Graham. He went on to apply this to three equity-and-income funds - Windsor, Gemini and Qualified Dividend - with spectacular results until his retirement in 1995.
An unassuming man, who always encouraged his colleagues to collaborate in his decisions, Neff never sought to publicize himself during his career in the same way as many star fund managers. But with the recent publication of his memoirs, John Neff on Investing, he is at last achieving the wider recognition he deserves.
Long-term returns
The average annual total return from the Windsor Fund during Neff's 32-year tenure was 13.7%, against a return from the S&P500 index of 10.6%.
Biggest success
Neff invested a huge proportion of his fund in Ford in 1984, when everyone feared it might go bust and the P/E ratio had sunk to 2.5! He paid an average price of under $14. Within 3 years, the price had climbed to $50, making Windsor profits of $500m.
Method and guidelines
Neff describes himself as 'a low price-earnings investor'. He hunts for stocks that are cheaply priced in relation to the total return indicated by the sum of their earnings growth plus their dividend yield. He calls this the 'terminal relationship' or, more colloquially, 'what you pay for what you get'. You might also think of it as the GYP (Growth & Yield:P/E) ratio:
(Earnings Growth + Dividend Yield) ÷ P/E ratio
Neff recommends comparing the GYP ratio on your stocks and on your whole portfolio with that on the market.
Example
Average forecast portfolio EPS growth (%)plus average forecast portfolio dividend yielddivided by average forecast portfolio P/E
= (7 + 5) ÷ 10= a GYP of 1.2
Average forecast market EPS growth (%)plus average forecast market dividend yielddivided by average forecast market P/E
= (15 + 2) ÷ 28= a GYP of 0.6
On the above figures, your portfolio would be twice as attractive as the market. (This is only an example. The actual relationship would usually be much closer.)
Consider avoiding, putting into your portfolio stocks that significantly reduce its overall attractiveness. Instead, set a target buying price that represents the GYP you are after and wait for the price to fall to that level.
If two companies offer a prospective 14% return, but Company A's consists of 14% earnings growth and no dividend, whereas Company B's consists of 7% growth plus a 7% dividend, it is better to choose Company B, because the dividend makes the outcome more certain.
Following this principle, Neff has always stuck to a simple investment style based on the following 7 selection criteria:
Low P/E ratio.
Fundamental earnings growth above 7%.
A solid, and ideally rising, dividend.
A much-better-than-average total return in relation to the P/E ratio.
No exposure to cyclical downturns without a compensatory low P/E.
Solid companies in growing fields.
A strong fundamental case for investment.
Source: John Neff on Investing, J Neff, 1999
A good place to look for ideas is the New Lows column in the back pages of the FT. Many, if not most, of the companies mentioned are generally bad investments. But shares in surprisingly good companies sometimes slide to new lows on bad news. Test these to see if they meet the 7 selection criteria. (Neff calls this the 'Hmmmph' test: "Some names I would not have expected to see on this list elicit an audible 'Hmmmph'.")
Don't chase highly recognized growth stocks. Their P/E ratios are invariably pushed up to ridiculously expensive levels. This greatly increases the risk of a sudden collapse in the share price.
Stick to a firm selling strategy, or you risk losing your profits. There are two basic reasons to sell:
Fundamentals deteriorate
The price approaches or matches your expectations.
The main fundamentals to keep an eye on are earnings estimates and 5-year growth rates. If these start to slip, sell at once.
Pay more attention to the GYP ratio of your portfolio than to the market. But if the market becomes very expensive and it is hard to find worthwhile purchases, it is permissible to hold up to 20% of your funds in cash until new opportunities emerge.
The best profits are usually made after market panics.
Key sayings
"Absent stunning growth rates, low P/E stocks can capture the wonders of P/E expansion with less risk than skittish growth stocks."
"As a low P/E investor, you have to distinguish misunderstood and overlooked stocks selling at bargain prices from many more stocks with lacklustre prospects."
"A dividend increase is one kind of 'free plus'. A free plus is the return investors enjoy over and above initial expectations. One of Ben Franklin's wise observations offers a parallel: 'He who waits upon Fortune is never sure of a dinner.' As I see it, a superior yield at least lets you snack on hors d'oeuvres while waiting for the main meal."
"An awful lot of people keep a stock too long because it gives them warm fuzzies - particularly when a contrarian stance has been vindicated. If they sell it, they lose bragging rights."
Further information
A brief chapter on Neff appears in The New Money Masters (1989) by John Train. But much more satisfying and illuminating is Neff's own account in John Neff on Investing (1999).
source;http://www.incademy.com/courses/Ten-great-investors/
Job description
Chief executive officer, Berkshire Hathaway Holdings, an investment firm headquartered in Omaha, Nebraska, USA.
Investment style
Originally a value investor interested chiefly in assets, Buffett has since become a long-term growth investor.
Profile
Buffett is a phenomenon. In 1986, he was briefly the richest man in the world, with a net worth of $16bn, thanks entirely to his stockpicking skills and fee income from investment management. He is now worth over $20bn. Yet he started out in 1954 with just $100 to invest. After training as a broker with Benjamin Graham, he founded an investment partnership, with himself as manager. This he ran until 1969, when he disbanded it in the face of dangerously high stock market valuations.
In 1965, he bought ailing textile firm Berkshire Hathaway. It was to become a holding company for a range of investments in media, insurance and consumer companies. He bought many of them at very low prices in the 1973-4 recession. This helped to keep his rates of return well ahead of the market during the Seventies and early Eighties.
Buffett was already a legend in the investment community by the time he bought a huge stake in Coca-Cola in 1988. But it was not until the success of that purchase that he became a folk hero too. He has since become a symbol of all that is best about the old-fashioned, down-to-earth values of mid-Western America. A gift for witty anecdote and example, displayed in college lectures and annual reports, has helped to spread his reputation far beyond the confines of Wall Street and the happy band of investors he has turned into millionaires.
Long-term returns
Buffett is widely regarded as the most successful investor of all time, with a compound return of around 22.3% over 36 years.
Biggest success
Buffett's purchase of Coca-Cola has made his investors a profit of around 800% over 12 years. Less well-known is his investment in advertising group Interpublic in 1973, which brought gains of over 900% in a little over 11 years.
Method and guidelines
Shares are not mere pieces of paper. They represent part-ownership of a business. So when contemplating an investment, think like a prospective owner. Focus on the underlying business, not the stock. What does it do? How well does it do it?
Stick to businesses you understand. Otherwise, you will never be able to grasp the true value of what you own.
There are only a few businesses worth buying. The world is divided into a handful of great businesses and a mass of poor or mediocre ones. Narrow your search down to the former."An investor should act as though he had a lifetime decision card with just twenty punches on it. With every investment decision his card is punched, and he has one fewer available for the rest of his life."
The best businesses are like toll bridges, which their customers have to pay to cross if they want to reach their destination. This enables them to piggyback on the growth of other, less fortunately placed businesses.
Most companies have to advertise to make their customers aware of their products and services, which means advertising companies cream off a steady percentage of their sales growth in the form of fees.
Most men have to shave their faces daily, and most women shave their legs. As the world's leading producer of razors, Gillette has a lock on a market that will never disappear, and is expanding in line with the world's population.
Great businesses enjoy the following characteristics:
Simplicity - they are easily understood, and straightforward to manage
Strong business franchises - they benefit from 'economic goodwill', i.e. the ability to keep raising prices above the level of inflation
Predictability - their earnings can confidently be projected into the future
High returns on capital - achieved without resorting to creative accounting or excessive debt. This is even more important than headline earnings.
Strong cash generation - they throw off cash and do not require heavy reinvestment in assets simply to stay in business, enabling them instead to invest the cash in pursuit of even greater profits.
Devotion to shareholder value - the management has a significant amount of its own capital tied up in the business, and thinks of shareholders as fellow owners whose interests are identical to their own.
Estimate the intrinsic value of the business. Price is what you pay, value is what you get. Allow a sufficient 'margin of safety' between the two, so that, in effect, you are paying 50p or 60p for £1 of value. That way, you will still be able to make a good return if your estimates err on the high side.
Buffett uses a calculation known as 'discounted cash flow', or DCF for short. This involves estimating the future cash flows of the business, and discounting these back to a present-day value by applying the rate of return you could otherwise get, with no risk, by putting your money into a benchmark bond, say 10-year UK gilts. This shows whether there is a gap between the current and projected values of the business which is wide enough to give you your margin of safety.
Click here for an example of a DCF analysis of Guinness adapted from The Warren Buffett Way by Robert Hagstrom.
Ignore the gyrations of the stock market. Buffett has said that, after buying a stock, he would not care if the market shut down altogether for ten years, since he is sufficiently confident of the intrinsic value of his holdings that he does not need the market to confirm it for him.
Sell only on one or more of the following conditions:
If the company's intrinsic value is not increasing at a satisfactory rate
If the market value of the company vastly exceeds its estimated intrinsic value
When you need the cash to invest in a company that is even more attractive on the basis of the gap between its intrinsic and market values.
Key sayings
"Rule Number One: Never lose money.Rule Number Two: Never forget Rule Number One."
"Ben Graham said: 'Investment is most intelligent when it is most businesslike.' These are the nine most important words ever written about investing."
"A good business is not always a good purchase, although it is a good place to look for one."
"I would sooner buy a great business at a fair price than a fair business at a great price."
"When a management with a reputation for brilliance tackles a business with a reputation for poor economics, it is the reputation of the business that stays intact."
Further information
Buffett has, alas, not yet written a full-length book of his own. But his annual reports and speeches have been published as The Essays of Warren Buffett (1998). You can also visit his website www.berkshirehathaway.com. The most readable how-to-copy-Warren guide is Robert Hagstrom's The Warren Buffett Way (1994), which he followed up with The Warren Buffett Portfolio (1999). Here in the UK, the monthly magazine Analyst uses stock selection methods modelled closely on Buffett's.
2. T Rowe Price
Job description
Until his retirement in the late Sixties, Price was the head of the investment firm he founded, T Rowe Price Associates. The firm still exists today and operates out of Baltimore, Maryland, USA.
Investment style
Cyclical investor in long-term growth companies, buying at the bottom of the business cycle and selling at the top. In later life, Price switched to a more value-driven style, investing in steady-growth, oil and gold stocks.
Profile
Price was a strong-willed and egotistical man. He never deviated from the daily agenda he set himself, nor from his decisions about when to buy and sell stocks. He demanded the same zeal and discipline from his employees. This unforgiving work ethic turned his firm into one of the largest asset managers of his day.
Price was very much an entrepreneur rather than a manager. He liked to start a fund, establish it and then move on to launch another one. Some of his most famous funds are still running today: T Rowe Price Growth Stock, New Horizons and New Era. His favourite companies, such as Avon Products and Black and Decker, actually became known as 'T Rowe Price stocks'.
But he sold the business to his associates when he saw that the prices of this group of companies were reaching absurd levels in the late Sixties. He himself changed to a more cautious and diversified approach, buying bonds and stocks from the energy and commodity sectors. The 1973-4 bear market proved the wisdom of this decision. His family portfolios soared, while those of his old firm collapsed.
Long-term returns
Price published a sample family portfolio to show how he had turned $1,000 invested in 1934 into $271,201 by the end of 1972 - a compound return of about 15.4% over 39 years.
Biggest success
Price's sample portfolio contained many striking successes. Among the most remarkable was pharmaceuticals firm Merck, bought for the equivalent of 37.5 cents in 1940 and still held 32 years later at $89.13 - a compound growth rate of about 18.6%, even without any reinvestment of dividends.
Method and guidelines
Like people, companies pass through three phases in their life cycle:
Growth
Maturity
Decadence
Look for companies in the earliest identifiable phase of growth. This growth is of two kinds:
Cyclical - growth in unit volumes of sales and in net earnings, which peaks at progressively higher levels at the top of each succeeding business cycle. These stocks are ideal for investors looking for capital gains during the recovery stage of the business cycle
Stable - growth in unit volumes and in net earnings, which persists through the downturn in the business cycle. These stocks are suitable for investors who need relatively stable income.
Concentrate on industry leaders. These can usually be identified by their competitive advantages, including:
Outstanding management
Leading-edge research and development
Patents, licences and other legally enforceable product rights
Relative protection from government regulation
Low labour costs, but good labour relations
These advantages usually go hand-in-hand with
A strong balance sheet
A high return on capital (at least 10%)
High profit margins
Consistently above-average earnings growth.
If these financial ratios are improving, that is often a good indicator that the company is still in its growth phase.
The best time to consider buying is when growth stocks are out of fashion. As a group, their P/E ratio will have fallen to roughly the same level as the market. Consider buying when the P/E is about 33% higher than the lowest point it has reached at the bottom of the last few cycles. Continue buying ('scaling in') until the price starts to rise strongly above this initial level.
The time to start selling is when the stock is 30% above your upper buying price limit. Sell off your stock gradually ('scale out') as the price continues to advance. (Price himself sold 10% every time the price rose 10%. Smaller investors may need to think in terms of selling 25-33% on each 20% advance.)
Also consider selling if
You can be reasonably certain the bull market has peaked
The company appears to be entering its mature phase
The company reports bad news
The stock price collapses on widespread selling.
Key sayings
"Even the amateur investor who lacks training and time to devote to managing his investments can be reasonably successful by selecting the best-managed companies in fertile fields for growth, buying their shares and retaining them until it becomes obvious that they no longer meet the definition of a growth stock."
"'Growth stocks' can be defined as shares in business enterprises that have demonstrated favourable underlying long-term growth in earnings and that, after careful research study, give indications of continued secular growth in future...Secular growth extends through several business cycles, with earnings reaching new high levels at the peak of each subsequent major business cycle..."
Further information
Start with John Train's profile in The Money Masters (1980). For Price's own views, see the extract 'Picking 'Growth' Stocks' in The Investor's Anthology, edited by Charles Ellis
3. Philip A Fisher
Job description
Investment advisor at his own San Francisco-based firm.
Investment style
Ultra long-term buy-and-hold investor in technology growth stocks.
Profile
After training as an analyst in a San Francisco bank, Phil Fisher started his own investment advisory business in 1931. He has always specialized in the type of firm for which California is best known: innovative technology companies driven by research and development. But he began almost 40 years before the name Silicon Valley was even thought of.
The firms he bought for his clients then were relatively low-tech, such as Dow Chemical or Food Machinery Corporation. Later on, he was one of the first professional investors to recognize the merits of hi-tech firms like Motorola and Texas Instruments when they were starting out.
Now in his nineties, he is still working in the same way he has always done. He is an extremely logical and methodical man, who only selects companies for purchase after a painstaking process of trawling through trade literature and interviewing managers and competitors. But he also has an unconventional and contrarian turn of mind, which helps him to spot value before the crowd.
Long-term returns
Not known.
Biggest success
Fisher acquired a lot of stock in Texas Instruments in 1956, long before it went public in 1970. It was first quoted at around $2.70, and has recently gone as high as $200 - a rise of 7,400% even without dividends. Fisher's own gains have probably been significantly higher, given that he bought the shares privately.
Methods and guidelines
Concentrate your attention and your cash on young growth stocks.
In order to identify and research promising prospects,
read everything you can lay your hands on, from trade journals to brokers' reports
interview those in the know, such as managers and employees, but especially suppliers, customers and competitors, who will be more forthcoming
visit various company sites if you can, and not just the headquarters.
Before you buy, make sure you get satisfactory answers to 15 key questions:
Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
How effective are the company's research and development efforts in relation to its size?
Does the company have an above average sales organization?
Does the company have a worthwhile profit margin?
What is the company doing to maintain or improve profit margins?
Does the company have outstanding labour and personnel relations?
Does the company have outstanding executive relations?
Does the company have depth to its management?
How good are the company's cost analysis and accounting controls?
Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
Does the company have a short-range or a long-range outlook in regard to profits?
In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
Does the management talk freely to investors about its affairs when things are going well, but 'clam up' when troubles and disappointments occur?
Does the company have a management of unquestionable integrity?
Source:Common Stocks and Uncommon Profits, P Fisher, 1958
There are only ever three reasons to sell:
If you have made a serious mistake in your assessment of the company
If the company no longer passes the 15 tests as clearly as it did before
If you could reinvest your money in another, far more attractive company. But before you do this, you must be very sure of your reasoning.
Key sayings
"I don't want a lot of good investments; I want a few outstanding ones."
"The greatest investment reward comes to those who by good luck or good sense find the occasional company that over the years can grow in sales and profits far more than industry as a whole."
"The business 'grapevine' is a remarkable thing. It is amazing what an accurate picture of the relative points of strength and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company."
"If the job has been correctly done when a common stock is purchased, the time to sell it is - almost never."
Further information
Fisher outlined his views and methods in the book Common Stocks and Uncommon Profits, first published in 1958. The 1996 edition published by J Wiley also comprises two shorter pieces, 'Conservative Investors Sleep Well' and 'Developing an Investment Philosophy', a highly educational account of his early experiences.
4. Kenneth L Fisher
Job description
Founder and CEO of Fisher Investments, a California-based investment advisory firm deploying a global, top-down, dynamic asset allocation strategy. Ken Fisher also serves as Chief Investment Officer heading the three-member Investment Policy Committee overseeing all strategic investments decisions across the firm. Fisher Investments manages billions of dollars for high net worth investors and institutional investors globally.
Investment style
Top-down, global, and dynamic. Fisher doesn’t adhere to a static size or style, but positions portfolios based on client objectives and forward-looking expectations.
Profile
Ken Fisher is the youngest of Philip Fisher's three sons. After graduating from college in 1972, Ken initially worked for his father's investment firm. However, he left his father’s firm and in 1979 founded Fisher Investments as a sole proprietorship, later incorporated and then reorganized into a limited liability company. Phil Fisher was a noted growth investor. Initially Ken Fisher embraced a value philosophy. His was one of the first firms to offer small-cap value investing, having helped define the category institutionally. Ken Fisher pioneered the Price to Sales Ratio, as documented in his 1984 book Super Stocks. This concept is now a core element of financial curriculum.
Ken Fisher started writing the “Portfolio Strategy” column in Forbes magazine in 1984, and in 2009 celebrated his 25th year as a Forbes columnist.
Through the decades, Ken Fisher evolved from a primarily small cap value investor to being style-agnostic and global by the early 1990s. He is a top-ranked market forecaster according to independent third party CXO Advisory Group*. He has been published or written about in many US, British, and German financial newspapers and magazines, and his academic research has been showcased and awarded in financial journals, including The Financial Analysts Journal and The Journal of Portfolio Management including a coveted Bernstein Fabozzi/Jacobs Levy award for outstanding research.
As of 2009, Ken Fisher has written six books on investing and wealth accumulation, including best sellers The Only Three Questions that Count, The Ten Roads to Riches, and How to Smell a Rat. His 1984 book Super Stocks was the best selling investment book that year.
Long-term returns
Not known.
Biggest success
As chronicled in his monthly Forbes column, Ken Fisher called the top of the tech bubble on March 6, 2000, and predicted three of the last four recent bear markets (1987, 1990, 2000).
Method and guidelines
As detailed in his 2006 best seller The Only Three Questions That Count, investing is a science, not a craft. As such, investors need a framework for ongoing scientific discovery. Ken Fisher’s query method is to ask three questions:
What do I believe that’s actually false?
What can I fathom that others find unfathomable?
How is my brain tripping me up?
The first question allows Ken Fisher to identify myths that most investors believe. He believes that if most investors believe X causes Y, but he can prove X doesn’t cause Y, when he sees X happening, he can bet against Y and win more often than lose. For example, using this method Ken Fisher has proven that, contrary to the popular belief that rising oil prices drive stocks down, the prices of oil and stocks have no meaningful correlation.
The second question helps uncover profitable relationships most investors can’t see. For example, if most investors believe X causes Y, but Ken Fisher discovers X doesn’t cause Y, Ken Fisher seeks to prove if X perhaps causes Q or Z. Then, when he sees X happening, he can bet on Q or Z while everyone else is betting incorrectly on Y. For example, using this method Ken Fisher uncovered data showing that high US federal budget deficits have led to above average stock market returns.
The third question falls in the realm of behavioral finance, a field of study Ken Fisher has helped pioneer. Ken Fisher believes humans’ brains are hard-wired to contend with basic problems of human survival, and humans don’t deal well with counter-intuitive problems like investing. According to his research, human instinct often leads to poor decision-making in investing. For example, myopic loss aversion is a common cognitive error that Ken Fisher finds leads investors to move to avoid near-term losses at the expense of longer-term goals.
Key sayings
“Your biggest investing enemy is your brain.”
“A good way to think about successful investing is it’s two-thirds not making mistakes, one-third doing something right.”
“I call the stock market The Great Humiliator. It wants to humiliate as many people as it can, for as long as it can, for as many dollars as it can.”
Further information
Fisher Investments has entered a partnership with publisher John Wiley & Sons to do the first ever publishing imprint by a money manager - Fisher Investments Press. Ken Fisher has published two titles under this new publishing imprint: 2008’s The Ten Roads to Riches and 2009’s How to Smell a Rat. The imprint has published six books authored by Fisher Investments staff including, Own the World by Aaron Anderson, 20/20 Money by Michael Hanson, and four “On” series books: Fisher Investments on Energy, Fisher Investments on Materials, Fisher Investments on Consumer Staples, and Fisher Investments on Industrials.
Fisher Investments produces a daily financial news and commentary website at MarketMinder.com.
Fisher Investments also has a wholly-owned subsidiary in the UK, Fisher Wealth Management, and a joint venture affiliate in Germany, Grüner Fisher Investments GmbH.
*CXO Advisory Group ranking is based on Ken Fisher’s personal market forecasts and stock picks as published in his Forbes column, and does not reflect the performance of Fisher Investments. Fisher Investments has no affiliation with CXO Advisory Group.
5. Jim Slater
Job description
No official position. Slater manages his own money through a private company.
Investment style
Flexible, but he is best known as for his interest in stocks that offer growth-at-a-reasonable-price (GARP).
Profile
Slater trained as an accountant. He first became interested in investment in the Sixties, while a director at a British Leyland subsidiary. After publicising his methods via a column in the Sunday Times, he launched the investment conglomerate Slater Walker, which he chaired until 1973. The company was known for its aggressive acquisitions in every area from banking to property. It collapsed in the 1973-4 recession, leaving Slater bankrupt to the tune of about £4m in today's currency.
He fought his way back to prosperity through private property deals and writing for small investors. In 1990, he published his main work, The Zulu Principle. This popularised the use of a financial ratio devised in America, known as the PEG, or Price:Earnings Growth Ratio. He has since devised a monthly publication called Company REFS (Really Essential Financial Statistics), which helps investors to apply his system by listing PEGs and other key ratios and information on all UK companies.
Now living in Surrey, but far from retired, Slater is still very active in educating investors through his books and lectures. He is also a major shareholder in a variety of small companies, and puts a good deal of money into charitable causes and sports sponsorships.
Long-term returns
Not known.
Biggest success
Slater's own sharedealings are mostly private. But in 1996-7, he is known to have built up a substantial holding in Blacks Leisure. After selling a lossmaking division, this sports retailer staged a spectacular recovery from around 50p to a high of 549p just 17 months later in May 1997, delivering gains of 1,000%.
Method and guidelines
The stock market is a constantly unfolding drama which shifts repeatedly from scene to scene as conditions fluctuate. It is thus unwise to stick rigidly to any one method or type of asset. However, advises Slater:
"I suggest that for most private investors their first (and possibly final) area of specialisation should be growth shares. They are by far the most rewarding investments. The upside is unlimited and, if the right companies are picked, the shares can be held for many years, during which they should multiply the original stake many times."Source: The Zulu Principle
The best shares to buy are those with high forecast earnings growth and a relatively low prospective P/E, i.e. a low Price:Earnings Growth ratio (PEG). A share is reckoned to be fair value when this ratio is 1.0. Search for shares with PEGs
no higher than 0.75.
ideally, 0.66 or lower.
Forward P/E15
Forward EPSgrowth (%)÷ 20
Forward PEG= 0.75
The appeal of a low PEG is that it offers scope for the shares to earn a higher P/E (known as a 're-rating') once the market recognises the earnings potential. Thus the price should rise by the same percentage as the earnings, plus a higher multiple of those earnings - a 'double whammy' effect.
When selecting shares, rely on figures and financial ratios rather than qualitative judgment. Click here for a list of quantitative criteria.
(Ask your broker for all the relevant figures, or consult Company REFS. You can find forecast EPS and P/E ratios on the Companies page of the Hemmington Scott website by clicking on 'Brokers' Consensus'.)
Consider selling when one of the following occurs:
The prospective PEG reaches 1.2 or higher.
The story changes for the worse, such that the figures and factors that first attracted you to the company no longer apply
An even more attractive investment opportunity presents itself.
Key sayings
"Become as expert as possible in your chosen niche market. You will achieve your objective, like Montgomery and Napoleon before him, by concentrating your attack."
"Investment is the art of the specific and selection is far more important than timing."
"The price of growth shares can only increase due to earnings growth and a status change in the multiple [the P/E ratio]. The latter is often much more important than the former."
"Elephants don't gallop - but fleas can jump to over two hundred times their own height"(i.e. smaller companies tend to grow much more rapidly than larger ones).
Further information
Start by reading Slater's primer, Investment Made Easy and visiting his webpages. These will prepare you for the more advanced material in The Zulu Principle and Beyond the Zulu Principle. After that, you may wish to sample Slater's monthly newsletter Investing for Growth.
6. Peter Lynch
Job description
Now retired, Lynch secured his reputation as one of the most successful fund managers in history while in charge of the Fidelity Magellan fund between 1977 and 1990.
Investment style
Highly active investment in a variety of stocks, with special emphasis on growth and recovery stories, and holding periods ranging from a couple of months to several years.
Profile
Lynch only ever worked for Fidelity, the international investment management firm based in Boston. He started as an analyst in 1969, was promoted to director of research in 1974, and took over the Fidelity Magellan fund in 1977. At the time, it had $22m in assets. By 1990, when he decided to take early retirement in order to spend more time with his family, its value had swollen to $14bn. No manager in history has ever run so large a fund, so successfully, for so long.
His secret was a punishing work schedule, lasting six and sometimes seven days a week, in which he talked to dozens of company managers, brokers and analysts every day. With a total staff of just two research assistants, he ran a portfolio of up to 1,400 stocks at any one time. Some he bought at an early stage of growth or recovery and held for years. The majority he became dissatisfied with and sold within months, admitting that over half his choices were mistakes.
Although you cannot copy his portfolio management style, Lynch is adamant that any small investor can research stocks better than most professionals, and make smarter decisions about what to buy. This is because he or she is often better placed to spot potentially profitable investments early, and is always free to act independently, rather than constrained by committees, trustees and superiors.
Long-term returns
During his tenure at Magellan, Lynch averaged 29% compound over 13 years. This remains a record for funds of this size.
Biggest success
The biggest successes Lynch lists in his book Beating the Street were all small growth companies when he bought them: Rogers Communications Inc, a 16-bagger, Telephone Data Systems, an 11-bagger, and plastic cutlery manufacturer Envirodyne and King World Productions, both tenbaggers. The last of these is Oprah Winfrey's production company, and also owns the TV rights to Wheel of Fortune and Double Jeopardy.
Method and guidelines
Firstly, keep your eyes and ears open for ideas.
Lynch's key concept is that you can spot investment opportunities all around you, if only you concentrate on what you already know and are familiar with. Maybe you notice a crowded shop or restaurant, or your neighbours all start buying a new make of car, or a nearby factory suddenly seems to be expanding - all these may be pointers to companies on the stock market that are worth further investigation.
Among your best sources of information are:
Your job, which familiarizes you with your company, its customers and its suppliers
Your hobbies and leisure pursuits, from sport to shopping
Your family and friends, thanks to all their jobs and hobbies
Your observation and experience of companies in your home town.
Secondly, categorize your ideas
Companies can be categorized into 6 main types:
Slow growers - raising earnings at about the same rate as the economy, about 2-4% a year.
Stalwarts - good companies with solid EPS growth of 10-12%
Fast growers - small, aggressive new companies growing 20-25% or more.
Cyclicals - whose earnings rise and fall as the economy booms and busts
Turnarounds - companies with temporarily depressed earnings, but good prospects for recovery.
Asset plays - companies whose shares are worth less than their assets, provided these assets could be sold off for at least book value.
Source: One Up on Wall Street, P Lynch, 1989
Consider concentrating your efforts on finding fast growers. If bought at the right price, some of these can become 'tenbaggers' - shares that multiply your investment ten times over. Otherwise, look for turnarounds and perhaps the occasional asset play.
Consider trying to avoid holding cash. It is better to stay fully invested by putting any spare money into stalwarts. That way, you will not miss out on rising markets.
Avoid slow growers (too unprofitable) and cyclicals (too hard to time).
Thirdly, summarize the story behind your stock.
Prepare a 2-minute monologue about the stock you have in mind, describing
The reasons you are interested in it
What has to happen for the company to succeed
The obstacles that might prevent its success.
This is the stock's 'story'. Make sure it is simple, accurate, convincing, and appropriate for the category of stock in question. For example, 'if it's a fast grower, then where and how can it continue to grow fast?'
Fourthly, check the key numbers.
If you are excited by a particular product or service, check it accounts for a sufficient percentage of total sales to make a significant difference to profits.
Favour companies with a forecast P/E ratio well below their forecast EPS growth rate (i.e. a low PEG ).
Favour companies with a strong cash position.
Avoid companies with a high debt-to-equity ratio ('gearing'), especially if the debt takes the form of bank overdrafts, which are repayable on demand, rather than bonds, which are not.
In the case of stalwarts and fast growers, look for a high pretax profit margin. In the case of turnarounds, look for a low one with the potential to rise.
Fifthly, base your buy and sell decisions on specifics.
Your profits and losses do not depend on the economy as a whole. They depend on the factors specific to the stocks you hold. So ignore the ups and downs of the market.
Buy whenever you come across an attractive idea, with a compelling story behind it, at an attractive price.
Consider selling stalwarts when their PEGs reach around 1.2-1.4, or when the long-term growth rate starts to slow.
Consider selling fast growers when there appears to be no further scope for expansion, or expansion starts to produce only disappointing sales and profits growth, or when their PEGs reach around 1.5-2.0.
Consider selling asset plays when they are taken over, or when assets that are sold off fetch lower than expected prices.
Key sayings
"If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighbourhood shopping mall, and long before Wall Street discovers them."
"The very best way to make money in a market is in a small growth company that has been profitable for a couple of years and simply goes on growing."
"The way you lose money in the market is to start off with an economic picture."
"You don't get hurt by what you do own that goes up. It's what you do own that kills you."
Further information
Lynch has written two extremely accessible books: One Up on Wall Street (1989) and Beating the Street (1993). The first ranks as one of the best investment primers ever for small investors. The second looks more closely at his time at Fidelity Magellan. A simplified account of his methods is given by John Train in The New Money Masters (1989)
7. Ralph Wanger
Job description
President of the Chicago-based Acorn Fund, run by investment firm Harris Associates.
Investment style
Theme-driven investment in smaller growth companies for the medium to long term.
Profile
After a brief period in insurance, Wanger joined Harris Associates in 1960 as an analyst. Later he became a portfolio manager. In 1970, he was put in charge of the Acorn Fund. He has since turned this into one of the top-performing growth funds of the last 30 years.
In the six months after its launch, the Acorn Fund lost over a third of its value in the most severe market downturn since the Thirties. Thankfully, the market recovered in the second half of the year and the fund survived. But the experience taught Wanger the value of a light-hearted approach to the vagaries of the market.
He subsequently became famous for his amusing quarterly reports:"Some people have written to tell me they became shareholders just so they can receive the reports, which makes the quarterlies the world's most expensive literary magazine."
He recently summarized his time at the fund in his book A Zebra in Lion Country (1999).
Long-term returns
The Acorn Fund returned 17.2% annually between 1970 and 1998, against a return from the S&P500 index of 14.4%.
Biggest success
Wanger has made big money from many unglamorous small companies. One is International Game Technology, the world's leading maker of slot machines. He paid $1 a share for it in 1988, when new management had just taken over and were planning a new range of electronic slot machines. In 1993, the stock hit a high of $40.
Method and guidelines
Concentrate on spotting trends that will last for at least 4-5 years.
Your life is driven by strong economic, social and technological trends. These also drive corporate sales and profits. When thinking of investing, start by looking around you and picking out those trends you think will be the most important and longest-lasting. Wanger's own favourites include:
the information revolution, and particularly its impact on costs
the expansion of world telephone and data networks
the business of leisure, boosted by affluent older baby-boomers,
outsourcing, as companies strip down to their core functions
money management, essential for the future wealth of an aging world.
Think small.
Smaller companies as a group have made far more profitable investments than larger ones. Although you cannot buy large numbers of them, try to focus your research on the best prospects in this group. Consider avoiding micro companies - they can be too risky. (In the UK, this means sticking to companies with a capitalization of about £30m-£250m.)
The best small companies are those that dominate their chosen niche. Their characteristics include:
growing markets for their products
good design
efficient, low-cost manufacturing
outstanding, entrepreneurial management
skilled marketing
high profit margins.
Look downstream for the best profits.
T Rowe Price focused on the leaders in growth industries. But the best money is often to be made by the downstream beneficiaries of a growth business. To use the old cliché, it wasn't the prospectors that made the money in the Yukon gold rush, it was those who sold them the picks and shovels.
Example
Rather than investing in semiconductor companies like Intel that manufactured microchips, Wanger went for cellular telephone companies that built their products into handsets.
Insist on financial strength.
Growth can only be sustained by companies with strong finances. It will be undermined by those that have to guzzle cash to feed their growth. So
Check the balance sheet to see if there is too much debt, or rising debt
Check that other liabilities, such as pension payments, are reasonable
Look for real cash generation, not simply accounting profits
As a rule, avoid turnarounds, start-ups and new issues, which tend to be weakly financed, especially if they are blue-sky tech companies.
Insist on fundamental value.
A good company is not necessarily a good stock unless it is attractively priced. Look for companies that are cheap in relation to their earnings-growth potential.
A crude measure of potential is the PEG
A better measure is to estimate the likely earnings per share 2 years ahead and multiply that by the likely P/E to arrive at a probable value. P/E ratios will be higher if interest rates are lower, and vice versa.(Professionals calculate this using a 'dividend discount model'.)
Sell only reluctantly.
If you have done your homework, you should be able to hold stocks for at least 4-5 years as a trend plays out. Wanger himself only turns over about one-quarter of his portfolio each year.
Sometimes, though, the P/E will rise to dangerous levels. Then you should consider selling some or all of your stock to reduce risk. Wanger sold International Game Technology when its P/E reached 40 and its estimated growth rate was 25%.
"In real-life portfolio management, sell decisions are often tough. You can't really apply hard-and-fast rules. Instead, you have to continually re-evaluate each situation."Source: A Zebra in Lion Country
Key sayings
"First I determine themes that will be played out over the next several years. Then I identify groups of stocks that reflect those themes."
"What I don't want are me-too companies that rank fifth or sixth in their industry, because their profit margins will rarely be as good as those of the industry leaders."
"Going downstream - investing in the businesses that will benefit from new technology rather than in the technology companies themselves - is often the smarter strategy."
"Assume that one of your eccentric friends who runs a large bank has just offered to lend you a great deal of money at about 10 percent interest, with which you may tender for all the stock of the company you are studying at the current market price. If you study the company and say 'Boy, this is terrific! Give me the loan and I'll do it. I'll quit my job and go run that company. It's a tremendous bargain,' then you probably have a good stock."
Further information
John Train profiled Wanger in The New Money Masters(1989). One of the appendices contains some fine extracts from the quarterly reports. Wanger himself brings the story up to date in A Zebra in Lion Country (1999)
8. William O'Neil
Job description
Chief Executive Officer, William O'Neil and Company, an advisory firm based in Los Angeles, California, USA.
Investment style
Growth stock trader with medium-term horizon (2-5 years).
Profile
O'Neil started out in 1958 as a stockbroker. During his three years in the job, he made a careful study of the top-performing mutual funds - the US equivalent of our unit and investment trusts. He discovered their success was entirely due to buying stocks that were setting new highs in price. In the language of chartists, they were 'breaking out' of previous holding patterns or 'consolidations'. Many of them would then go on to make advances of many tens or even hundreds of percent.
He decided to copy this method. Within a year or so, he had turned $5,000 into $200,000. In 1963, he bought a member's seat on the New York Stock Exchange and founded the firm he still runs today. He was one of the famous 'performance' fund managers of the Sixties, and a pioneer of database-driven stock selection. His company still supplies a wide variety of statistics and data to professional investors.
In 1983, he launched a financial newspaper to rival the Wall Street Journal, called Investor's Daily. Against the odds, this has become a widely-read and well-respected alternative to its venerable competitor. Part of its appeal rests on its unique data tables, which also underpin his own investment approach and his advice to clients.
Long-term returns
O'Neil's track record has had its ups and downs, particularly during and just after the 'go-go' years of the Sixties. But he is thought to have averaged an annual return of over 40% on his personal account in the ten years up to 1989.
Biggest success
One of O'Neil's earliest coups was in the drug stock Syntex. The company was the first mass manufacturer of the birth control pill at the start of the 'sexual revolution'. It had just announced quarterly earnings growth of 300% when he bought the stock in 1963. As the market woke up to the potential, the price rocketed from $100 to $550 in 6 months, making him enough money to set up his own business.
Method and guidelines
Like Jim Slater, O'Neil relies on a mixture of quantitative and qualitative criteria to pick stocks. His method has to be adapted for use in the UK, to allow for differences in accounting practice and the lesser availability of financial statistics. But his basic approach to trading is as applicable here as in the US. The key idea is to seek out only those growth stocks that have the greatest potential for swift price rises from the moment you buy them. In essence, buy the strong, sell the weak.
He suggests you remember the seven criteria listed below by the acronym C-A-N-S-L-I-M, adding that investment is like dieting: anyone can manage it with a little effort and discipline.
C = Current quarterly earningsLook for companies that have just announced quarterly earnings increases of 40-500% (Here in the UK the equivalent is interim or annual increases).
A = Annual earnings increasesLook for companies with at least 5 years of prior growth, at a compound rate of no less than 25%. Prefer those with the most consistent growth. The P/E ratio is relatively unimportant. On average, it may range from 20 to about 45.
N = New products, new management, new highsThe best stocks have a new story behind them, such as new and exciting products or new directors. They are also breaking out to new highs. On a chart, they typically form a shape that looks like 'a cup with a handle'. Click here for an example.
S = Supply and demandThe less stock there is to buy, the more any buying will drive up the price. Look for companies with around 10-25 million shares in issue. Watch for a rise in the amount of shares traded ('volume') of at least 50% above average.
L = Leaders and laggardsStick to the 2 or 3 stocks showing the highest relative strength in their sector. They should have outperformed 80-90% of all other stocks in the last 12 months. Stay away from those that have underperformed for more than 7 months.
I = Institutional sponsorshipIdentify the 3-10 best performing institutional investors. Check out the stocks they are buying as candidates for your own portfolio. Favour companies which are 'underowned' by the professionals (i.e. 10% or less of the shares belong to institutions).
M = Market directionCheck the market daily for early signs of any major downturn. (O'Neil discusses various indicators of this in his book How to Make Money in Stocks. But it needs to be said these can be unreliable in practice). Consider trying to avoid making new purchases once a decline of 10% or more gets underway.
Source: How to Make Money in Stocks, W O'Neil, 1988.
Follow a strict stoploss policy. O'Neil suggests selling any stock that has dropped 7-8% below the price you paid. Consider looking at doing this automatically.
Consider selling stocks that have not risen 20% or more after 13 weeks. And consider holding those that have risen 20% in 4-5 weeks. These may go on to be the biggest winners of all.
In the case of stocks you have held for some time, sell after any sudden and rapid climb of 25% or more in 1-2 weeks. This generally happens when good news or rosy publicity causes investors to become too enthusiastic about the stock. Take advantage by taking your profits. (In all, O'Neil lists 35 rules for profit-taking. Most of them are variants on the basic theme: 'Sell into strength'.)
Consider looking to avoid low-priced penny shares, options and new issues. These are mostly gambling chips, with only occasional potential for really big profits.
Key sayings
"The whole secret to winning and losing in the stock market is to lose the least amount possible when you're not right."
"Always sell your worst stock first."
"What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower."
"History will repeat itself."
Further information
O'Neil's book How to Make Money in Stocks is a must-read for growth stock investors and traders. He makes some additional points in 24 Essential Lessons for Investment Success. Market Wizards by Jack Schwager contains interesting interviews both with him and with his right-hand man, David Ryan. For details of O'Neil's newspaper, visit the website Investors.com.
9. Sir John Templeton
Job description
Retired, but formerly head of Templeton Investment Management.
Investment style
Deep-value contrarian with truly global perspective.
Profile
John Templeton was born into a poor Tennessee family. Shortly before the war, he joined a brokerage in New York. His first investment coup was to turn $10,000 borrowed from his boss into $40,000 over 4 years. His strategy was to buy all the 104 US stocks that were selling for less than $1 at the outbreak of the war.
Shortly afterwards, he launched his own investment advisory firm. At the age of 56, he sold this and started again with a single fund - Templeton Growth - based in Nassau in the Bahamas. This became the top performer among all US funds over the following twenty years. High on the list of reasons for its success was Templeton's ability to spot opportunities abroad before the crowd, e.g. Japan in the early Sixties, Canadian property in the Seventies.
Now retired, Templeton continues to live in Nassau and take an active interest in investment. As a committed Christian, he believes his financial success and philanthropic achievements have been closely linked to his own spiritual development.
Long-term returns
From 1954-2000, the Templeton Growth Fund averaged gains of around 15% a year.
Biggest success
Since Templeton's value-based methods have led him to buy large numbers of stocks, individual successes have been less important than overall averages. Perhaps his most remarkable move was to invest heavily in Japan in 1962. It went on to become the world's most dynamic market in the years up to 1990.
Method and guidelines
Templeton has distilled his principles of investment success into ten maxims, which still act as the basis of his old firm's culture and share selection process:
Invest for real returnsThe true objective for any long-term investor is maximum total real return after taxes.
Keep an open mindNever adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded and sceptical...
Why follow the crowd?If you buy the same securities as other people, you will have the same results as other people... To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.
Everything changesBear markets have always been temporary. And so have bull markets...
Consider avoiding the popular...Too many investors can spoil any share selection method or any market timing formula.
Learn from your mistakesThis time is different are among the most costly four words in market history.
Buy during times of market pessimism...The time of maximum pessimism can be the best time to buy, and the time of maximum optimism can be the best time to sell.
Hunt for value and bargains...In the stock market, the only way to get a bargain is to buy considering what most investors are selling.
Search worldwide...If you search worldwide, you will find more bargains and better bargains than by studying only one nation...
No-one knows everythingAn investor who has all the answers doesn't even understand the questions.
Source: Templeton Maxims, published by Templeton Investment Management Limited
The four key factors to consider in fundamental analysis of any company are:
The P/E ratio in relation to other comparable companies
Operating profit margins, particularly if they are rising
Liquidating value, i.e. the price the firm would fetch if sold off
The average growth rate of earnings, and especially the consistency of growth. In general, avoid buying companies whose earnings slip two years in a row. Also steer clear of those growing at an unsustainable pace.
When deciding which countries to invest in,
Avoid those plagued by socialist policies and/or inflation
Favour those with high long-term growth rates
Especially favour those showing a trend towards economic liberalisation, e.g. privatisation, anti-union legislation, greater openness and transparency in stock market dealings.
Key sayings
"History shows that time, not timing, is the key to investment success. Therefore, the best time to buy stocks is when you have money."
"I never made money for clients by buying anything expensive."
Further information
A good account of the man and his methods is given by John Train in Chapter 7 of The Money Masters (1980). Free booklets describing the organization and its history are occasionally issued by Templeton Investment Management, Saltire Court, 20 Castle Terrace, Edinburgh EH1 2EH, tel 0131 469 4000.
10. John Neff
Job description
Until his recent retirement, manager of the Vanguard Windsor Fund, now run by Vanguard Mutual Funds of Chicago, Illinois, USA.
Investment style
Hard-core value investment, based on buying good companies with moderate growth and high dividends while out of favour, and selling once they rise to fair value.
Profile
Neff is known as 'the professional's professional', because many fund managers entrusted their money to him in the belief that it would be in safe hands. That view was justified by his remarkably consistent performance. For more than 30 years, the Windsor Fund routinely featured in the top 5 percent of all US mutual funds.
Neff studied industrial marketing at college, but attended night classes to get a degree in banking and finance. In 1954, he became a securities analyst with the National City Bank of Cleveland. Both there and at his next firm, Wellington Management, he pursued a value style of investment modelled on the writings of Ben Graham. He went on to apply this to three equity-and-income funds - Windsor, Gemini and Qualified Dividend - with spectacular results until his retirement in 1995.
An unassuming man, who always encouraged his colleagues to collaborate in his decisions, Neff never sought to publicize himself during his career in the same way as many star fund managers. But with the recent publication of his memoirs, John Neff on Investing, he is at last achieving the wider recognition he deserves.
Long-term returns
The average annual total return from the Windsor Fund during Neff's 32-year tenure was 13.7%, against a return from the S&P500 index of 10.6%.
Biggest success
Neff invested a huge proportion of his fund in Ford in 1984, when everyone feared it might go bust and the P/E ratio had sunk to 2.5! He paid an average price of under $14. Within 3 years, the price had climbed to $50, making Windsor profits of $500m.
Method and guidelines
Neff describes himself as 'a low price-earnings investor'. He hunts for stocks that are cheaply priced in relation to the total return indicated by the sum of their earnings growth plus their dividend yield. He calls this the 'terminal relationship' or, more colloquially, 'what you pay for what you get'. You might also think of it as the GYP (Growth & Yield:P/E) ratio:
(Earnings Growth + Dividend Yield) ÷ P/E ratio
Neff recommends comparing the GYP ratio on your stocks and on your whole portfolio with that on the market.
Example
Average forecast portfolio EPS growth (%)plus average forecast portfolio dividend yielddivided by average forecast portfolio P/E
= (7 + 5) ÷ 10= a GYP of 1.2
Average forecast market EPS growth (%)plus average forecast market dividend yielddivided by average forecast market P/E
= (15 + 2) ÷ 28= a GYP of 0.6
On the above figures, your portfolio would be twice as attractive as the market. (This is only an example. The actual relationship would usually be much closer.)
Consider avoiding, putting into your portfolio stocks that significantly reduce its overall attractiveness. Instead, set a target buying price that represents the GYP you are after and wait for the price to fall to that level.
If two companies offer a prospective 14% return, but Company A's consists of 14% earnings growth and no dividend, whereas Company B's consists of 7% growth plus a 7% dividend, it is better to choose Company B, because the dividend makes the outcome more certain.
Following this principle, Neff has always stuck to a simple investment style based on the following 7 selection criteria:
Low P/E ratio.
Fundamental earnings growth above 7%.
A solid, and ideally rising, dividend.
A much-better-than-average total return in relation to the P/E ratio.
No exposure to cyclical downturns without a compensatory low P/E.
Solid companies in growing fields.
A strong fundamental case for investment.
Source: John Neff on Investing, J Neff, 1999
A good place to look for ideas is the New Lows column in the back pages of the FT. Many, if not most, of the companies mentioned are generally bad investments. But shares in surprisingly good companies sometimes slide to new lows on bad news. Test these to see if they meet the 7 selection criteria. (Neff calls this the 'Hmmmph' test: "Some names I would not have expected to see on this list elicit an audible 'Hmmmph'.")
Don't chase highly recognized growth stocks. Their P/E ratios are invariably pushed up to ridiculously expensive levels. This greatly increases the risk of a sudden collapse in the share price.
Stick to a firm selling strategy, or you risk losing your profits. There are two basic reasons to sell:
Fundamentals deteriorate
The price approaches or matches your expectations.
The main fundamentals to keep an eye on are earnings estimates and 5-year growth rates. If these start to slip, sell at once.
Pay more attention to the GYP ratio of your portfolio than to the market. But if the market becomes very expensive and it is hard to find worthwhile purchases, it is permissible to hold up to 20% of your funds in cash until new opportunities emerge.
The best profits are usually made after market panics.
Key sayings
"Absent stunning growth rates, low P/E stocks can capture the wonders of P/E expansion with less risk than skittish growth stocks."
"As a low P/E investor, you have to distinguish misunderstood and overlooked stocks selling at bargain prices from many more stocks with lacklustre prospects."
"A dividend increase is one kind of 'free plus'. A free plus is the return investors enjoy over and above initial expectations. One of Ben Franklin's wise observations offers a parallel: 'He who waits upon Fortune is never sure of a dinner.' As I see it, a superior yield at least lets you snack on hors d'oeuvres while waiting for the main meal."
"An awful lot of people keep a stock too long because it gives them warm fuzzies - particularly when a contrarian stance has been vindicated. If they sell it, they lose bragging rights."
Further information
A brief chapter on Neff appears in The New Money Masters (1989) by John Train. But much more satisfying and illuminating is Neff's own account in John Neff on Investing (1999).
source;http://www.incademy.com/courses/Ten-great-investors/
Friday, October 23, 2009
ET NOW : Rakesh Jhunjhunwala (23102009)
The journey of Rakesh Jhunjhunwala
23 Oct 2009, 0800 hrs IST, ET Now
We have seen a 80% rise in the stock markets over the last one year, the highest pace in fact in the last eight years and one man saw this
happening. We are talking about the pied piper of the Indian stock markets, none other than Rakesh Jhunjhunwala. A journey which started with just Rs. 5000 has now moved to this place, RaRe Enterprises (Ra-Rakesh Jhunjhunwala, Re- Rekha Jhunjhunwala). Rakesh Jhunjhunwala spoke exclusively to ET Now of his experience with the markets and about his journey to the top.
When you first ventured into the stock markets, it must have been a huge gamble 20 years ago. You qualified as a CA, what made you take that step?
My father was also interested in stocks. When I was a young child, he and his friends would drink in the evening and discuss about the stock market. I would listen to them and one day I asked him why do these prices fluctuate. He told me to check if there is a news item on Gwalior Rayon in the newspaper, and if there was Gwalio Rayon's price would fluctuate the next day.
I found it very interesting and I got fascinated by stocks, I self-taught myself. My father told me to do whatever I wanted in life but at least get professionally qualified.
Rakesh Jhunjhunwala and Shankar Sharma debate
Will China drag global and Indian markets down?
Bull vs Bear: Will this market rally end or continue further?
I was always a reasonably good student so I took up chartered accountancy. In January 1985, I completed my CA. I told my father I wanted to go to the stock market. My father reacted by telling me not to ask him or any of his friends for money. He, however, told me that I could live in the house in Mumbai and that if I did not do well in the market I could always earn my livelihood as chartered accountant. This sense of security really drove me in life.
Check out what Jhunjhunwala's family has to say
But your first real large investment was Sesa Goa, I am curious to understand Sesa Goa, a commodity company, what prompted you to invest in Sesa Goa?
Sesa Goa had a big fall because there was a depression in the iron ore industry and then prices for the next year had been considerably raised about 20-25%. The stock was available abysmally cheap around Rs. 25-26. There was a projection of a very good growth in profitability in the next year but nobody seemed to believe it.
When I saw the facts, I wanted to invest but I did not have capital. Between 1986 and 1989 I must have earned Rs 20-25 lakhs. After 1986, the market went into a big depression for two three years but I put that money in Tata Power and the Tata Power stocks became about 1100-1200.
Now I was worth Rs 50-55 lakhs. I bought 4 lakh shares of Sesa Goa in forward trading, worth Rs 1 crore. I sold about 2-2.5 lakh shares at Rs 60-65 and another 1 lakh at Rs 150-175. The prices then went up to Rs 2200 and I sold some shares. I did some other trading too. I had net worth of about Rs 2 - 2.5 crore.
Was there any point of time when you came close to thinking that this is not for you or was it always a goal from the beginning?
I would not say that I did not come to a point where I had doubts in my mind, but my family circumstances and the support of my parents and my wife and my brother always let me do what I wanted in life. As long as I was not risking anything which I had not made with my own hands and I was playing with my money, I thought it was fine.
Your mother insisted that stock market is for gamblers, your wife is saying that she is a good luck charm, there was perhaps some amount of family resistance when you started your entry into stocks.
I would not say there was some kind of resitance, there was only some kind of apprehension. They never stopped me from going, they only warned me. There can be no greater well wisher for me in life than my mother. My mother says every man’s luck is his woman.
People will laugh at me, but when they ask me to make a wish for the next life, I will say I want the same parents, same brother and sister, same wife, same friends.
Are you superstitious, to what extent do you feel that luck has something to do with it?
I would not say I am superstitious. When you acknowledge that you have been lucky or you have been successful because of circumstances which are not what you have done or created, then you get humility, you do you feel that I am what I am because of what I am. You feel you are what you are because a set of circumstances came together and those circumstances were not brought together only by you, they were also brought together by fate. For example if Rakesh Jhunjhunwala has earned some wealth in life, the fact that the index was 150 when he came here and today the index is 17500, is one of the biggest contributors of the creation of the wealth, yes.
Did you ever in your wildest dreams imagine that we would be at these levels?
When index was at 150 points I did not have so much idea of markets but surely in 2002-2003 I felt that markets will see levels and India will see prosperity which we can't imagine right now. I still hold that view.
What does Rakesh Jhunjhunwala do when he does want to take some time out, indulge himself, is there something you enjoy doing?
I enjoy reading, I enjoy watching food shows.
Are you a big foodie?
Yeah, look at my size. Basically my favourite food is street food. I love the Chinese food on the streets, also I love the dosa. I do not get the taste in the paav bhaji anywhere so I tell my wife and then we make it at home. I basically like relaxing, I do not do much physical activity.
Now we know three sides of Rakesh Jhunjhunwala, investor, trader and businessman, you have got a fourth side also and a very prominent fourth side which is the philanthropist, the philanthropist Rakesh Jhunjhunwala because I have been told that you got big plans to construct a children’s home.
I would not call myself a philanthropist and all, it is too early but surely see, we must realise one thing that the giver of this wealth is God, do not think we have earned it because we are smart. Ultimate giver is God and it casts a duty on us that this wealth be used for good social purposes. So it is the aim and ambition of my life that a good portion of the wealth that I earn would be used for good social purposes.
The only sure income that I have is dividend income and I spend one third of my dividend income in charity and I hope to do that in future and also with time I would like to endow at least Rs. 500 crores to a foundation and really work on charitable activity.
Everyone knows that you are both a successful long term investor as well as a trader, how do you manage to balance both?
Short term trading is for short term gain. Long term trading is for long term capital formation. Trading is what gives you the capital to invest. My trading also helps my investing in the sense I use a lot of technical analysis for trading at times.
If the stock is overpriced, I should sell but my trading skills tell me that the stock can remain overvalued or get more overvalued. Hence, I hold on to my investments.
So, I think they complement each other in many ways but they are two distinct compartments totally.
You make investment decisions quickly and with a lot of conviction. We got examples how you made a decision to buy Praj or Matrix, that is unique. When you are investing long term money, you need to assess it, you need some time assessing.
See, one thing first of all, all assessments can only be made up to a point. You are investing in the future, the future is uncertain. So you cannot make any prediction of profits to any preision and you look at the opportunity; you look at the people managing, you look at the competitive ability.
If the margin of what you think the value is and if you think the future can be so great then why spend time assessing it. If I thought that Matrix profits are going to be hundred crores and Matrix market cap is 150 crores then what should I invest, what should I research and what should I think. So when the opportunity is so great...
It is interesting that some of your best ideas have come not because of insider information, not because of insider edge, they have come because of simple common sense and news which is there in public domain.
Yes, they have, because many a times the insiders themselves do not know what is happening. My idea is to credit the factors which drive the portfolio which are the opportunities, the competitive ability, the people, the valuation, the return on capital.
So if those circumstances are present then why will profits not arise.
Welcome back, Samvat 2065, Indian markets have given astonishing return of 80%. Where from here, this Diwali to next Diwali, do you see Indian markets?
I see very very very very bullish for the very very very long term. Bullish for the short term and maybe you could see a correction in the mid-term.
What extent of a correction could we see?
I wish I knew.
Have you made any large investments in the last three months?
I have not made large investments in the last three months because I have been fully invested right through the fall and right through the rise but I did make some investments in the last one or two years.
You have often indicated that it is important to buy but it is equally important to buy at a right price, are prices right?
Well, prices are right. There can be no generalisation, you know, look at the equity, you can still find investment opportunities at these price levels. In 2003 bull market, I made some of the best investments in which I made the largest money.
I made the investment in Praj Industries in January 2004 with the index of 5500 and it nearly doubled and I sold some part of it about 250 times appreciation even now.
Any area that you have been looking to exit or you think it is the right time to exit over the last few months or now?
As far as the exits are concerned, I keep buying-selling something, nothing substantial. The variability in my portfolio will not be more than 5% or 3%. Personally, I have decided that at some point of time, regardless of companies, looking at the macro, I am going to exit all my investments because the history of bull markets tells us that excesses go to such levels and to recapture them takes decades.
What are the biggest driving factors for the markets going ahead?
Well, driving factor for the market is that there is a transition from West to the East. We have good regulation, good trading platforms, there is mountain of savings; we are just going to go up every year driven by growth in GDP demographics, growth in financial markets.
The foreigners have no choice but they will invest where growth is 10%, I think that is what is driving markets.
Is that a case where next 12 to 24 months' earnings do not expand and PE multiples will expand?
I do not think so. I think earnings will expand faster than what people are anticipating and already none of the results have disappointed.
You have no exposure to real estate, very little exposure to technology and very little exposure again to commodities.
Well, I will not buy real estate even today. Look at the way you can get value for a stock by issuing an old stock and there is the continued circle to get constant earnings. It is speculation of the highest order.
What happens in real estate price discovery is most imperfect and I do not like the general real estate.
Although bullish in the residential real estate in India, I do not think there are models which are sustaining.
As far as technology is concerned, I think it is a mature industry. I am bearish on US dollar, I have large investment in the unlisted space. I have some exposure to commodities and I have a large investment in oil companies.
Maybe it was by design of accident, I missed the cement boom and I never invested again. I missed the cement boom in 2003-2004-2005. As far as other industries are concerned I was bullish on Tata Steel because of the Corus factor, but I did not buy.
So what would Rakesh Jhunjhunwala buy today?
Well, what I buy today and what I sell today is a matter of personal...
Which sector would you look at?
I would look at all India sensitive sectors, retailing, banking, infrastructure, pharma.
How do you see yourself, Rakesh Jhunjhunwala, the family man, the investor or the businessman?
See, the only truth of life is death and that when I am going to die I would say boss, just leave me for three hours, I would buy one stock, I will do some trading, I will spend some time with my children, my wife, I will have two drinks and then you can burn me. So it has to be combination of everything
source;economic times
23 Oct 2009, 0800 hrs IST, ET Now
We have seen a 80% rise in the stock markets over the last one year, the highest pace in fact in the last eight years and one man saw this
happening. We are talking about the pied piper of the Indian stock markets, none other than Rakesh Jhunjhunwala. A journey which started with just Rs. 5000 has now moved to this place, RaRe Enterprises (Ra-Rakesh Jhunjhunwala, Re- Rekha Jhunjhunwala). Rakesh Jhunjhunwala spoke exclusively to ET Now of his experience with the markets and about his journey to the top.
When you first ventured into the stock markets, it must have been a huge gamble 20 years ago. You qualified as a CA, what made you take that step?
My father was also interested in stocks. When I was a young child, he and his friends would drink in the evening and discuss about the stock market. I would listen to them and one day I asked him why do these prices fluctuate. He told me to check if there is a news item on Gwalior Rayon in the newspaper, and if there was Gwalio Rayon's price would fluctuate the next day.
I found it very interesting and I got fascinated by stocks, I self-taught myself. My father told me to do whatever I wanted in life but at least get professionally qualified.
Rakesh Jhunjhunwala and Shankar Sharma debate
Will China drag global and Indian markets down?
Bull vs Bear: Will this market rally end or continue further?
I was always a reasonably good student so I took up chartered accountancy. In January 1985, I completed my CA. I told my father I wanted to go to the stock market. My father reacted by telling me not to ask him or any of his friends for money. He, however, told me that I could live in the house in Mumbai and that if I did not do well in the market I could always earn my livelihood as chartered accountant. This sense of security really drove me in life.
Check out what Jhunjhunwala's family has to say
But your first real large investment was Sesa Goa, I am curious to understand Sesa Goa, a commodity company, what prompted you to invest in Sesa Goa?
Sesa Goa had a big fall because there was a depression in the iron ore industry and then prices for the next year had been considerably raised about 20-25%. The stock was available abysmally cheap around Rs. 25-26. There was a projection of a very good growth in profitability in the next year but nobody seemed to believe it.
When I saw the facts, I wanted to invest but I did not have capital. Between 1986 and 1989 I must have earned Rs 20-25 lakhs. After 1986, the market went into a big depression for two three years but I put that money in Tata Power and the Tata Power stocks became about 1100-1200.
Now I was worth Rs 50-55 lakhs. I bought 4 lakh shares of Sesa Goa in forward trading, worth Rs 1 crore. I sold about 2-2.5 lakh shares at Rs 60-65 and another 1 lakh at Rs 150-175. The prices then went up to Rs 2200 and I sold some shares. I did some other trading too. I had net worth of about Rs 2 - 2.5 crore.
Was there any point of time when you came close to thinking that this is not for you or was it always a goal from the beginning?
I would not say that I did not come to a point where I had doubts in my mind, but my family circumstances and the support of my parents and my wife and my brother always let me do what I wanted in life. As long as I was not risking anything which I had not made with my own hands and I was playing with my money, I thought it was fine.
Your mother insisted that stock market is for gamblers, your wife is saying that she is a good luck charm, there was perhaps some amount of family resistance when you started your entry into stocks.
I would not say there was some kind of resitance, there was only some kind of apprehension. They never stopped me from going, they only warned me. There can be no greater well wisher for me in life than my mother. My mother says every man’s luck is his woman.
People will laugh at me, but when they ask me to make a wish for the next life, I will say I want the same parents, same brother and sister, same wife, same friends.
Are you superstitious, to what extent do you feel that luck has something to do with it?
I would not say I am superstitious. When you acknowledge that you have been lucky or you have been successful because of circumstances which are not what you have done or created, then you get humility, you do you feel that I am what I am because of what I am. You feel you are what you are because a set of circumstances came together and those circumstances were not brought together only by you, they were also brought together by fate. For example if Rakesh Jhunjhunwala has earned some wealth in life, the fact that the index was 150 when he came here and today the index is 17500, is one of the biggest contributors of the creation of the wealth, yes.
Did you ever in your wildest dreams imagine that we would be at these levels?
When index was at 150 points I did not have so much idea of markets but surely in 2002-2003 I felt that markets will see levels and India will see prosperity which we can't imagine right now. I still hold that view.
What does Rakesh Jhunjhunwala do when he does want to take some time out, indulge himself, is there something you enjoy doing?
I enjoy reading, I enjoy watching food shows.
Are you a big foodie?
Yeah, look at my size. Basically my favourite food is street food. I love the Chinese food on the streets, also I love the dosa. I do not get the taste in the paav bhaji anywhere so I tell my wife and then we make it at home. I basically like relaxing, I do not do much physical activity.
Now we know three sides of Rakesh Jhunjhunwala, investor, trader and businessman, you have got a fourth side also and a very prominent fourth side which is the philanthropist, the philanthropist Rakesh Jhunjhunwala because I have been told that you got big plans to construct a children’s home.
I would not call myself a philanthropist and all, it is too early but surely see, we must realise one thing that the giver of this wealth is God, do not think we have earned it because we are smart. Ultimate giver is God and it casts a duty on us that this wealth be used for good social purposes. So it is the aim and ambition of my life that a good portion of the wealth that I earn would be used for good social purposes.
The only sure income that I have is dividend income and I spend one third of my dividend income in charity and I hope to do that in future and also with time I would like to endow at least Rs. 500 crores to a foundation and really work on charitable activity.
Everyone knows that you are both a successful long term investor as well as a trader, how do you manage to balance both?
Short term trading is for short term gain. Long term trading is for long term capital formation. Trading is what gives you the capital to invest. My trading also helps my investing in the sense I use a lot of technical analysis for trading at times.
If the stock is overpriced, I should sell but my trading skills tell me that the stock can remain overvalued or get more overvalued. Hence, I hold on to my investments.
So, I think they complement each other in many ways but they are two distinct compartments totally.
You make investment decisions quickly and with a lot of conviction. We got examples how you made a decision to buy Praj or Matrix, that is unique. When you are investing long term money, you need to assess it, you need some time assessing.
See, one thing first of all, all assessments can only be made up to a point. You are investing in the future, the future is uncertain. So you cannot make any prediction of profits to any preision and you look at the opportunity; you look at the people managing, you look at the competitive ability.
If the margin of what you think the value is and if you think the future can be so great then why spend time assessing it. If I thought that Matrix profits are going to be hundred crores and Matrix market cap is 150 crores then what should I invest, what should I research and what should I think. So when the opportunity is so great...
It is interesting that some of your best ideas have come not because of insider information, not because of insider edge, they have come because of simple common sense and news which is there in public domain.
Yes, they have, because many a times the insiders themselves do not know what is happening. My idea is to credit the factors which drive the portfolio which are the opportunities, the competitive ability, the people, the valuation, the return on capital.
So if those circumstances are present then why will profits not arise.
Welcome back, Samvat 2065, Indian markets have given astonishing return of 80%. Where from here, this Diwali to next Diwali, do you see Indian markets?
I see very very very very bullish for the very very very long term. Bullish for the short term and maybe you could see a correction in the mid-term.
What extent of a correction could we see?
I wish I knew.
Have you made any large investments in the last three months?
I have not made large investments in the last three months because I have been fully invested right through the fall and right through the rise but I did make some investments in the last one or two years.
You have often indicated that it is important to buy but it is equally important to buy at a right price, are prices right?
Well, prices are right. There can be no generalisation, you know, look at the equity, you can still find investment opportunities at these price levels. In 2003 bull market, I made some of the best investments in which I made the largest money.
I made the investment in Praj Industries in January 2004 with the index of 5500 and it nearly doubled and I sold some part of it about 250 times appreciation even now.
Any area that you have been looking to exit or you think it is the right time to exit over the last few months or now?
As far as the exits are concerned, I keep buying-selling something, nothing substantial. The variability in my portfolio will not be more than 5% or 3%. Personally, I have decided that at some point of time, regardless of companies, looking at the macro, I am going to exit all my investments because the history of bull markets tells us that excesses go to such levels and to recapture them takes decades.
What are the biggest driving factors for the markets going ahead?
Well, driving factor for the market is that there is a transition from West to the East. We have good regulation, good trading platforms, there is mountain of savings; we are just going to go up every year driven by growth in GDP demographics, growth in financial markets.
The foreigners have no choice but they will invest where growth is 10%, I think that is what is driving markets.
Is that a case where next 12 to 24 months' earnings do not expand and PE multiples will expand?
I do not think so. I think earnings will expand faster than what people are anticipating and already none of the results have disappointed.
You have no exposure to real estate, very little exposure to technology and very little exposure again to commodities.
Well, I will not buy real estate even today. Look at the way you can get value for a stock by issuing an old stock and there is the continued circle to get constant earnings. It is speculation of the highest order.
What happens in real estate price discovery is most imperfect and I do not like the general real estate.
Although bullish in the residential real estate in India, I do not think there are models which are sustaining.
As far as technology is concerned, I think it is a mature industry. I am bearish on US dollar, I have large investment in the unlisted space. I have some exposure to commodities and I have a large investment in oil companies.
Maybe it was by design of accident, I missed the cement boom and I never invested again. I missed the cement boom in 2003-2004-2005. As far as other industries are concerned I was bullish on Tata Steel because of the Corus factor, but I did not buy.
So what would Rakesh Jhunjhunwala buy today?
Well, what I buy today and what I sell today is a matter of personal...
Which sector would you look at?
I would look at all India sensitive sectors, retailing, banking, infrastructure, pharma.
How do you see yourself, Rakesh Jhunjhunwala, the family man, the investor or the businessman?
See, the only truth of life is death and that when I am going to die I would say boss, just leave me for three hours, I would buy one stock, I will do some trading, I will spend some time with my children, my wife, I will have two drinks and then you can burn me. So it has to be combination of everything
source;economic times
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