Mistakes you should avoid while investing in the Stock Market

I have been investing in the market and analyzing investor behaviour for some time and have tracked markets for last 7 years. Here are the few mistakes which you should avoid while investing in the market;

• A lot of investors these days don’t really put in the hard work in micro managing their portfolio. Now, this is an important aspect. Your portfolio manager might be doing a fantastic job but at the end of the day, it’s your portfolio, you have to analyze it and make sure you bring in the desired changes by talking to your manager. 

• In the market but without any fundamental knowledge of markets and finance, and blindly following the recommendations of Analysts, Commentators and brokers.
  

• Not spending much time in understanding the data related to volumes of the index or even particular stocks. If an investor does some number crunching about indices or stocks, he’s more likely to get a good deal.

• Going for ‘Averaging’ when stocks go way below the purchase price. There’s a reason why a particular stock has fallen from the peak. You don’t have to catch a falling knife just to average your purchase price. You are already in losses and instead of going for good companies, you are again putting money in a company which has been a bad investment for you.

• Showing more inclination in buying a company which is of lower price (say a two/three digit) than a quality, proven business which is of higher price (say a four digit).

• Buying without any return expectations. The investor should be sure about his risk taking ability and his expectations of return from the investment.

• Trying to game the market. It’s almost impossible to game the market. You have to respect the volatility and other aspects of the market.

Key Learnings from Investing

I have always been quite passionate about Investing and understanding the Capital Markets. And after carefully analyzing everything, here are few of my learnings from investing;

• Never consider stock just as a piece of paper. You should always judge a stock as a part interest in a business. Look at the business underlying it. You cannot look at it in isolation, but you can more easily value a stock if you can value the business it represents as a whole.

• Have a good margin of safety. It means that the price being paid is less than what a prudent investor might consider a fair market price. This difference between price paid and the fair price acts as a cushion during difficult times. In the worst of times, it would minimize the chances of a loss; in the best of the times, it could lead to super profits.
  Benjamin Graham argued that investments could be made successful with such margins of safety. And such opportunities were more common than people thought.
  

• Finding Bargains. Often enough, one could find companies valued at less than the working capital it employed or less than the value of cash in hand plus its own portfolio of investments. A bargain? Are you serious? Yes. Are these opportunities common? Quite common during tough market conditions, but also possible during normal market conditions. Can you deploy big money for these? Yes. Not if you analyse things objectively.

• Look at the quality of management of the company. The quality of management is judged by how often they meet their budgets and how closely they stick to a proven formula. If you want to know whether the management is honest and looking after its shareholders, you can know this from the financial statements as well. For example, if there are many one time accounting entries or special charges in year-after-year financial statements, it probably means that the management team is doing accounting jugglery, overstating the profits and is not being transparent with its investors.
  Further, if the prices of the stock options being given to the management are being revised downwards, it shows its tendency to make money at the expense of its shareholders.
  

• Analyze the financials of the company. Take a macro view of everything. And just to explain this point in greater detail, understand EBITDA (Earnings before Interest, Taxes, Depreciation and Adjustments) and ROCE (Return of Capital Employed). EBITDA is the profit from the core operations of the business. It reflects the operational performance of the company. ROCE is how much money a company makes on the total money it uses from debt and equity sources. A strong ROCE is a prerequisite for a good investment.

A Small Token of Appreciation for You - Mom

We all have role models in life; someone whom we look up to or like some superhero or a celebrity. I liked Batman a lot in my childhood simply because he was a human and yet he could do superhuman things. I was amazed by his skills but little did I realize that I have my very own superhero in the form of my mother. She did and still does everything out of unconditional love and never did I have to ask her to give me a hug or anything; she knew it whenever I wanted it.

Over the years, I have observed that people of my age are very shy of showing their love and true emotions to their parents. I don't know why they do that. May be they are afraid of being viewed as ‘emotional’ by their friends or relatives. But I think it’s better to let the emotions flow rather than choke it. I wish many boys and girls take this initiative and let their near and dear ones know how much they mean to them. Our lives would become a lot more satisfying.

Well mom, as I write this I am filled with emotions and love. You have been there for everything; my exams, mood swings, frustrations of failures, joy of success and caring for me all through when I was not well. I have called you for things which I have forgotten and you have responded with the exact location of that thing in the house. I hope I have made you realize how fortunate I am to have you as my mom. It’s truly been a sweet blessing.

You have made me the center of our universe and it feels amazing to have someone to support & listen to you 24*7 in a world which is increasingly becoming self centered. You’re my best friend, teacher, mentor, guide and everything which I have missed out writing here.

You have responded positively to almost all of my acceptable demands and also showed the way for what is not unacceptable. I was passionate about cricket and you let me enjoy the game without imposing any condition. It’s you who has led by example by showing the importance of values like love, kindness and compassion to me. You have given confidence and made me to embrace vulnerability and failures. You have made me who I am.

You have been extremely patient with me all through my failures and have been proud of my accomplishments. You supported me and believed in my dreams and ideas even when everyone else was skeptical about it. You’re the first one I turn to whenever I face any adversity and seek re-assurance and you’re also the first one I go to with good news to celebrate. You simply have been my pillar of strength for so many years and for many more years to come by.

And now looking back, I don't know whether I was good enough to be your son since you had set high standards with the way you have conducted yourself in this life. This is the moment. I am sorry for letting you down with me not grabbing a lot of opportunities that came my way. Mom, words won't be able to convey what I am feeling right now. May be tears do. But, you have done a wonderful job in making me the best person I could become. Don’t ever carry a regret that you didn’t do enough for me. You have given me more than I deserve.

If there's ever a concept of re-birth I would ALWAYS WANT to be your son.

All yours for life,

Your little one.  

To Virender Sehwag with a lot of admiration and respect

It’s the first over of the match. A batsman is coming out to bat. He is swinging his arms in a 360 degrees swing. The batsman takes the strike in his nonchalant manner. But the bowler is worried about being hit for a boundary on first ball because the batsman is Virender Sehwag. That’s the fear of the man. The era of Sehwag is over. He gave us thrills and heartbreak, joy and frustration, instant happiness and grief; all through his playing career. He batted like a thriller movie keeping the audience gasping for some more, making them sit on the edge of the seat wondering in disbelief on what will happen next and giving them a treat for most of the times.

There are some things you wouldn’t want to explain. You just feel it. You enjoy that moment. Tendulkar’s straight drive. Laxman’s wristy flick. Dravid’s forward defense. All these are moments to treasure, to revel but not to explain to anyone. Sehwag’s whole batsmanship was like that. He was above explanation. He would surprise you at every moment but had an uncluttered mind. And that was the magic of Sehwag. He kept it uncomplicated. Purists and those whistling at road side stalls, all enjoyed Sehwag’s batting.

He attacks the ball because the bowler must worry about where to bowl next. "The batsman is nervous," he says, "but he must make the bowler nervous too. When the bowler is nervous, he will bowl a bad ball." And with that Sehwag challenges the bowler, almost makes him move away from his strengths and then he capitalizes. All his finest knocks have come whenever he has taken the attack to the opposition; he scored 284 in just a single day of a test match in Mumbai in 2009, 83 against England in that famous win at Chennai, 201 not out against Sri Lanka when the whole team could manage only 329. These are just the snapshots of his sparkling career. He did much more. He created fear, made captains to change strategies, gave bowlers a lot of time to get 20 wickets.

Sehwag; an experience to savour

Triple centuries at a strike rate which you would have to rub your eyes to see whether it’s true or not. He changed the dynamics of the game. His ability to live in the present is extraordinary. And as Jarrod Kimber put it whether the ball went into a scoreboard, into a crowd, onto a roof, or safely nestled in the keeper's gloves, it was gone. Finished. That moment, that euphoria, that danger, doesn't matter anymore. The greatest leg cutter, the sexiest doosra, or a mystery ball fired from a cannon, it doesn't matter. It could be a long hop. A full toss. It just goes past him. When you bowled to him, you weren't bowling to a batsman; you were bowling to a belief system.

His composure is exemplary. It would be difficult to gauge from his expression whether he is batting on 0 or 150. He has hit a six to reach 300. He tried to go for a six to reach 200 but did not get the desired result. But tell me; is there any other batsman who would have dared to do that? His simple approach towards not just cricket but for life as well is something we need to admire and learn from.

Some of his shots will remain etched in the memory of those who have watched him in his prime; especially the upper cut, up and over the gully fielder and sometimes over third man too. The bowler and his captain discuss something animatedly after that but quite often Sehwag has found a way to disrupt the proceedings with his uninhibited stroke play.

His comparison with Sachin Tendulkar seems unfair to me. Because Sehwag is something else. He is his own man. He has his own method although he has many times said about how he used to shadow practice the shots played by Tendulkar. Over the years, Sehwag never compromised his natural game and even now if he gets a loose ball on green pitch outside off stump he will play the ferocious cut.

Let’s talk about few other aspects of Sehwag’s game. His reading of the game is as good as anyone in the business. Mind you, he was an under-rated captain. He wasn’t afraid of trying out unorthodox methods to get batsmen out. His off-spin before the shoulder injury lent provided a lot of support to the bowling unit. The loop and drift which he generated with his bowling was very good for a part time bowler.

He played with a smile and brought many more for us; his fans and admirers. Some of the best days of my childhood were spent watching Sehwag smash best bowlers out of the park. Sadly, he has retired; though the memories of childhood remain as fresh as ever.

On Death and losing people in life

Death, the sound of the word is enough to send shivers down our spine. Few enlightened souls are not afraid of this reality but for ordinary human beings like me, death is something which is tragic and it is all about tears to me. No one wants to die. And yet, death is the destination that we all share. The question which comes up is that are you afraid of dying or are you afraid to see your loved ones go before you?

It happened. 3^rd October, 2014. My grandfather left this world. I went numb as things went by. As the ashes of his body went up in the sky, my memories came back. I had returned from Mumbai to be on time for his funeral and it is was a painful journey. It was like as if someone had opened chambers of past. Time went by, we all moved on in our respective lives and now it is close to one year to that day but still, I tend to reminisce a lot about my childhood in which he played a crucial part in shaping my knowledge about stock markets.

That brings me to my dilemma about death, Am I afraid of dying or am I afraid to see my loved ones go before me. I shudder to think what will happen to me if I am at the receiving end of losing the people whom I loved dearly all through my life. It would be dreadful. I surely don’t wish to lose them in front of me but then I don’t want to be someone who is insecure about living without people. Because for life moves on irrespective of whether a person has his family by his side or not.

 

But to look at the other side, am I afraid of the reality of the life? Frankly I don’t know. At 23, you don’t think about life and death; you just go through the motions. But, somewhere deep in my heart I understand that life moves on, no matter how hard it seems. We all find a way to hang on to some threads which keep us moving. This is a reality which we (including me) have to embrace in life. Every person who is born is destined to leave as well. Some leave early which is very depressing but we need to take the fight and emerge as winners and not merely survivors.

Many times, I have been told that it is better to forget the people who are no more alive in this world. I still don’t get that. Because you find peace when you let go of your emotions and accept the reality. Forgetting is temporary but acceptance is permanent. It is this acceptance of the reality which has made me stronger during various times of my life. I believe it will work for you as well. Don’t try to forget but accept the reality about any untimely demise of a loved one and move on as soon as possible. Pick up the pieces of your life and do your best.